BL Explainer

Why India chose to ban wheat export

Subramani Ra Mancombu | | Updated on: May 16, 2022

Why has India imposed a ban on wheat exports?

Five reasons can be attributed to the ban. One, wheat production this year is feared to be lower than 100 million tonnes (mt) against initial estimates of a record 111.32 mt. Two, procurement by the Food Corporation of India (FCI) dropped by over 50 per cent compared with last year. Three, wheat prices in the country began to increase in the wake of export demand triggered by the Russia-Ukraine war and soaring inflation. Four, a sharp surge in global wheat prices that could have affected Indian consumers and five, fertiliser prices have more than trebled since the Russia-Ukraine war broke out. It will likely lead to lower sowing of wheat across the world and thus, the tight supply situation may continue into 2023.

Why the sudden U-turn at a time when the nation was looking to export wheat taking advantage of the global shortage?

It would be better to term it a “course correction”. Plans to take advantage of the global shortage have been affected by a sub-100 mt wheat production in the country in view of the heatwave resulting in shrivelling of the grain and lower yield, lower FCI procurement and concerns over the emerging global food situation.

What does this mean to the domestic and global price of wheat?

Domestic wheat prices have already dropped by ₹100-150 a quintal soon after the ban. But prices are likely to rule above the minimum support price (MSP) of  ₹2,015 a quintal for a major part of this year and as long as the war continues. Global prices have flared up in view of India’s ban. On Monday (May 16), benchmark wheat prices on the Chicago Board of Trade increased by 5 per cent to $12.37 a bushel ($454.47 a tonne). They will rule at elevated levels this year. 

Is it a knee-jerk reaction as some experts say?

No, it is not a knee-jerk reaction. The decision was taken in the national interest as inflation, which is basically imported, was surging. Two, India had to ensure food for its citizens first. It has also made it clear that it will tend to the needs of its neighbours and vulnerable nations.

What has caused the shortage in domestic production?

Domestic production is lower because the heatwave that swept across the country in March-April affected the yield. There is no shortage but the Centre does not want the situation on the inflation front to go out of control. Private traders hold huge stocks, which according to some exporters are 18 mt. With FCI having stocks that will just meet the requirements of supply through the public distribution system and the mandatory inventory of 7.4 mt on March 31, 2023, the Centre had to come up with some measures to ensure wheat prices will be within reasonable limits for the consumer and user industries such as flour mills. 

Is India open to helping countries that have been badly affected due to a shortage of wheat?

Yes, and it has spelt it out clearly in its order banning exports. Besides neighbouring countries such as Bangladesh, Nepal and Sri Lanka that are reeling under surging commodity prices globally, the least developed African nations are vulnerable since their supplies from Russia and Ukraine have been affected due to war. The ban exempts government-to-government exports. Usually, exports to vulnerable nations take place on a government-to-government basis and thus, India will support countries badly affected by wheat shortages.  

Published on May 16, 2022
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