The surprise decision had led to a lot of chaos as hundreds of thousands of tonnes of wheat were reportedly left stranded at Gujarat’s Kandla Port after the ban was announced.
But the new notification from the Ministry of Commerce has said, "It has been decided that wherever wheat consignments have been handed over to Customs for examination and have been registered into their systems on or prior to 13.5.2022, such consignments would be allowed to be exported."
Explaining its rationale behind prohibiting the export of wheat, the central government had said that it was committed to providing for the food security of India as well as other vulnerable countries that had been adversely affected by sudden disruptions in the global market for wheat.
But in the aftermath of the ban, as the wheat prices soared to a record high, the ban drew criticism from G7 nations, which said that such moves would "worsen the crisis" of rising commodity prices.
But even back at home the jury is divided. While some are of the opinion that such a ban can impact India’s credibility and is also harsh on farmers who could profit from the higher export prices, others say that it is needed to curb the rising prices in the country as severe heatwaves have damaged crops.
But to better understand the rationale behind the export ban and its likely implications on domestic and foreign markets, I spoke to Deepanshu Mohan, Associate Professor and Director at the Centre for New Economics Studies at the Jindal School of Liberal Arts and Humanities.
Host: Sakshat Chandok
Guest: Deepanshu Mohan, Associate Professor and Director at the Centre for New Economics Studies at the Jindal School of Liberal Arts and Humanities
Editor: Shelly Walia
Producer: Shorbori
Music: Big Bang Fuzz
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[00:00:00] After enforcing a ban on wheat exports, India announced some relaxations on 18th May. The surprise decision had led to a lot of chaos as hundreds of thousands of tons of wheat were reportedly left stranded at Gujarat's Kandala Port after the ban was announced.
[00:00:27] But the new notification from the Ministry of Commerce has said, and I quote, It has been decided that wherever the wheat consignments have been handed over to customs for examination and have been registered into their systems on or prior to 13th May 2022,
[00:00:41] such consignments would be allowed to be exported. Explaining its rationale behind prohibiting the export of wheat, the central government had said that it was committed to providing for the food security of India as well as
[00:00:52] other vulnerable countries that had been adversely affected by sudden disruptions in the global market for wheat. But in the aftermath of the ban, as wheat prices soared to a record high, the ban drew criticism
[00:01:04] from G7 nations which said that such moves would worsen the crisis of rising commodity prices. But even back at home, the jury is divided. While some are of the opinion that such a ban can impact India's credibility and
[00:01:16] is also harsh on farmers who could profit from the higher export prices, others say that it is needed to curb the rising prices in the country as severe heatwaves have damaged crops. But to better understand the rationale behind the export ban and its likely implications on
[00:01:31] domestic and foreign markets, I spoke to Dipanshu Mohan, Associate Professor and Director at the Center for New Economic Studies at the Jindal School of Liberal Arts and Humanities. You are tuned in to the big story, the podcast where we dissect the headline making news
[00:01:47] for you and I am your host, Sakshat. So first let me tell you a little more about the backdrop of why India took this decision. The move comes after the country recorded a huge crop loss in the aftermath of a severe heatwave in March.
[00:02:06] On the international front, the decision was taken amid the war in Ukraine which had triggered a drop in the supply of wheat among other commodities from the Black Sea thus creating a global food crisis.
[00:02:17] As a result of the steep rise in global prices, several farmers were selling their produce to traders instead of the government. This might have worried the government with regard to buffer stocks of almost 20 million tons which were depleted amid the COVID-19 pandemic required for handouts to
[00:02:32] millions of poverty stricken people and to ensure that a famine does not occur. But the ban drew a big reaction. Although India is the second largest producer of wheat in the world just behind China, in the wake of the Russia-Ukrain war, the demand for wheat has increased.
[00:02:47] Several countries were looking to New Delhi to enhance its exports in order to help tidy over the crisis. However, India's wheat production is expected to be lower than its estimates. As per reports, India's wheat production was around 109.59 million tons in the 2020-21 crop year from July to June.
[00:03:04] But the government has revised its estimates for the current crop year from the earlier projection of 111.32 million tons to 105 million tons due to the onset of early summer. As has been reported, the government's decision came as a disappointment for many who termed the move as being protectionist.
[00:03:21] But let's now move to our guest, Dipanshu Mohan, who will talk about the rationale behind the government's decision to prohibit wheat exports and how it is likely to impact domestic and foreign markets. Welcome, Dipanshu Mohan, to this episode of the Big Story Podcast. Thank you.
[00:03:36] Thank you, Dr. Dakshwit for having me here. So the decision to prohibit wheat exports has come at a time when India's consumer price inflation has hit an eight-year high of almost 7.8% in April. Real food inflation on the other hand has surged even higher to reach almost 8.4%.
[00:03:56] How do you think the government's decision to prohibit wheat exports at this time will impact inflation further? I think to understand why inflation is a concern, banning wheat exports may not have a direct impact in reducing the rise in surging prices.
[00:04:17] Wheat is not the only part of the food inflation basket which is going up in terms of higher prices from fuel to almost every other essentially commodity consumers purchase or consume using a price rise.
[00:04:37] The point on wheat ban as recently written and argued is reflective of two things. One, if the government was really bothered about inflation it could have gradually filtered wheat exports rather than resorting to a major ban.
[00:05:00] This would have or this could have taken the form of imposing a minimum export price so not exporting a quantum of wheat unless and until there is a particular price that another country is willing to pay.
[00:05:14] So a lot of our wheat exports are going to let's say Bangladesh. Bangladesh was promising a higher export price which should have curtailed and limited our exports that way or imposed a tariff. You don't ban a commodity which is an essential sort of consumption commodity for other
[00:05:30] countries as well because your credibility is an export that gets us. The other point which is important to mention here for you listeners is government procurement of wheat had also fallen mainly because farmers were getting higher prices selling into private traders and exporters.
[00:05:47] So there was that concern that the more farmers get a better price from private traders and exporters they might not sell a quantum of supply of wheat to the government which meant that there was pressure on the government to increase its minimum support price which is the MSP.
[00:06:08] Now if what one would have anticipated in this the prices of the Portugal wheat goes up is that the government should automatically increase or adjust its MSP and offer a higher that's say rupees 200 or 250 bonus over the MSP to farmers they didn't do that.
[00:06:26] So it is actually quite bizarre from purely basic sense of economic rationale on why you would impose such a strong ad hoc protectionist measure as against resorting to other ways in which that was possible.
[00:06:44] So that brings me to my next question which is that opposition parties in the country have condemned the government's move as being anti-farmers. Now according to you what are the various ways in which farmers may be affected by the wheat ban?
[00:06:58] So I mean the point on how farmers would be affected is very simple. If I am an entrepreneur producing a commodity for which I was getting a better price because there was a seasonal peak in demand I would be waiting for that period because
[00:07:16] it allows me to maximize my revenue or in other words get a better price for the product that I have or I have invested in putting so much of resources to produce and getting a better return is in the interest of every entrepreneur.
[00:07:33] What the government's move has done is it's almost inhibited or restricted the farmers ability to get that better price. Now which is quite difficult to understand why because there was an entire year of time
[00:07:51] when the whole debate around the new farm laws was being pitched at every sort of news corner and the government rhetoric was we are doing everything possible for the interest of farmers to get them quote unquote a better price, get them wider market access,
[00:08:09] allow them the freedom to sell whatever they wanted whatever price anywhere in the country or outside. So then what happened? This was the time when those producing wheat had their moment they were getting a better price for their product.
[00:08:23] There wasn't any amount of code in or any kind of restrictions or something would you come consider as deemed quote unquote illegal that was happening. So it is the ban on export isn't implicit tax on farmers by not allowing them to get
[00:08:41] a better price which they would otherwise have had. What it also does is I mean the ban also reflects a very deep rooted consumer bias in India's trade policy. It is this consumer bias which you would see is indirectly becoming or has become anti-farmers.
[00:08:59] When farmers get getting a price for wheat in the open market that is 10% higher than the minimum support price. Why is the government not letting them take the benefit of improved market conditions? I mean if the government's interest is to augment or increase the double farmers income
[00:09:16] this is the way you actually increase your income by allowing them to get a better price. Just for your game for your listeners we are always willing to pay that extra few rupees as an urban consumer for the coffee we are getting at Starbucks or coffee we are
[00:09:34] getting at Costa Coffee or just any regular coffee chain but for wheat or onion and tomatoes then where farmers really get the beating in terms of not having a better price distribution margin.
[00:09:51] Why is there so much of human crime which is created in trying to restrict their ability to get that better price or get that better profit margin. So there is I mean the move signals the hypocrisy of I mean unparalleled magnitude of the current
[00:10:10] ruling dispense intention and more importantly what is worrying is its policy outlook for India's farmers is not based again it has not learned its lessons from the farm laws of providing a consensus based deliberative model of undertaking a policy.
[00:10:26] There is clear evidence that the government came to economically liberate farmers wasn't so much about allowing them greater market access to better prices it was more about thinking of consequentially independent approaches of getting things done in ad hoc centralized manner.
[00:10:46] Right so speaking on the international front now the G7 countries have slammed India's move saying that it would burst in the global food crisis. However even though India is the world's second largest producer of wheat it was never a big
[00:11:01] exporter going to large domestic food needs as well as massive government subsidies on prices. What do you think is the G7's rationale behind the criticism and how will India's move impact global markets?
[00:11:14] See there are two points here one the first point is we have in our foreign policy outlook consistently echoed the need for India to do more at the global level. It's not just about food exports of the current crisis and India's sort of time
[00:11:32] of India's moment to shine and be that global player we see that global importance after shaping relations with other countries. India's been trying to do that in terms of its foreign policy post-train for a good decade and especially the last eight years under the Modi's
[00:11:54] government you've seen that assertive foreign policy push. What you expect in times like such as this is to work the talk on what you're post-train when it comes to your economic policy decision making. The ban exports a degree of economic insecurity clearly because India's
[00:12:15] monetary policy and fiscal policy failed to contain inflation. At this point of time it may seem that inflation is largely a problem which has been imported from the global inflationary itself but if you look at the data wholesale price index was rising for straight 14-15 months.
[00:12:35] Transuma price index has been rising much from earlier mid of last year. So this is not entirely a global phenomena which is being imported into India. We were having issues with price distribution before as well and COVID didn't make things better.
[00:12:53] This is the second occasion one has to understand that the Indian sort of export orientation has been suddenly or in an ad hoc manner being affected. We did that with vaccines then we didn't vaccinate our own population and we decided to sort of export
[00:13:11] vaccines made in India to many other developing countries again a very noble gesture welcome but celebrated but we did that at a time when we didn't think about our own citizens first. And as a result when the Delta variant was lacking havoc all throughout the country
[00:13:29] and receiving mortality rate we had to stop our exports to other countries including the dismissal of existing contracts of vaccines that were promised to be delivered in other countries. So the Veel Bank export being criticized from the G7 or remember the German agricultural minister
[00:13:48] saying that every country starts shutting their borders the crisis is worsening. He's right. This is India's moment for taking that a greater assertive role if it wishes to be seen as a wish to guru or a greater agent of change in the global economic landscape.
[00:14:10] China is clearly hurting because of its COVID policies and the fact that many countries are not comfortable in terms of expanding trade relations with China they are with India. Weed is not something we were exporting at max before but Russia was the largest sort of exporter
[00:14:30] of wheat and India was increasingly being seen as the second substitute. If you look at the numbers last three months wheat exports were very high in the Indian from India to other countries. Despite high wheat prices this is important as
[00:14:48] well which means there was a sense of urgency in demanding greater or higher quantum to wheat from India. Ukraine also supplies a lot of wheat and with the whole conflict with Russia of course the supplies have been hit Argentina is far geographically very distant so it's
[00:15:07] difficult to sort of get in a lot of its supplies from there. The United States itself is battling a high inflation crisis in its own thermostrict territory so India was being seen as that actor
[00:15:19] right now to step in and more than what the G2 are saying I think internationally and even regionally this damages India's reputation as a credible export thing there. So this brings me to my final question sir you know at a time when the Narendra Modi government
[00:15:40] is attempting to increase its exports and reduce its trade deficit could you maybe elaborate on the various economic implications that this will have as well as on the the adverse impact this could have on India's image as a credible exporter. Yeah just to I mean continue the last
[00:15:59] point that I was saying there is a there is a damage to your reputation when you suddenly you know pull the plug and say well we're banning meat exports overnight. Trucks get chewed up existing contracts would be questioned and you know economic arrangements and partnerships work
[00:16:19] work mainly on trust and your ability to trust your partner to deliver on future promises that's the way financial markets work that's the way you know everything else happens in the way the economy is transformed and changed. The intervention of policy or the
[00:16:36] intervention of the state in terms of deciding a unilateral action which has not been deliberated upon before unless and until happening in a moment of a sudden circumstance about a for an
[00:16:51] emergency is difficult to fathom. My sense is that India is going in the direction of having a lot of free trade agreement at this point of time it does wish to have better trade deal struck with countries and which means that bilateral relations between countries will be tested
[00:17:12] in how better a deal might be struck going forward and with bands such as this one clearly the image of a nation in terms of its ability to deliver on promises and economic arrangements and contracts
[00:17:29] is definitely brought into question. Yes as a developing country a lot of countries may understand that yes you have a high inflationary problem or staff but as I said earlier and before there are many ways to phase out an exodus of exports by keeping a higher minimum
[00:17:49] export price or imposing a tariff which is a temporal tariff in discouraging you know high amount of exports and keeping your supplies in a higher amount of the domestic market. I would also argue that this is this is the moment where for farmers in India which have
[00:18:08] been you know sort of always left on an unfair deal being received from the state if the effort to make India which is largely and agrarian economy now as well you know in terms
[00:18:22] of our rural population largely most of the rural population works in agriculture. This was a critical moment for us in order to deliver and expand our economic partnerships many countries in agribusiness and agricultural goods it's not just about wheat I think there's a lot more that
[00:18:43] could have come into play if things could have been managed or worked out better. Right so thank you so much Dipanshu Mohan for joining me on this podcast today. Thank you that's a wrap on this episode but you can check out our detailed coverage and analysis
[00:19:01] of the government's decision to prohibit wheat exports on our website. If you like listening to this episode please subscribe to the big story playlist of episodic updates. We'll have on Apple, Google Podcasts, Spotify, Geo7 and most of the other popular podcast streaming platforms. For other podcasts
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