From Wheat To Crypto: Crude Bans Instead Of Deft Policy
Wheat cannot be digitised. Crypto cannot be eaten. Yet both can suffer the same wrath at the hands of India’s policymakers.
Wheat cannot be digitised. Crypto cannot be eaten. Yet both can suffer the same wrath at the hands of India’s policymakers.
Let’s start with wheat. The Russia-Ukraine war brought a windfall for India’s wheat farmers, perhaps a divine payoff for the cruelty they endured through the two-year agitation against the three farm laws. The war choked off almost 40% of world supplies, forcing countries to queue up outside India’s mandis (local agriculture marts). Global prices leapt, turbo-charging India’s hitherto tiny export share of about a percent or two of world markets. Tiny, because until now, India, the second-largest producer of wheat behind Russia, hardly felt the need to export. Our government’s minimum support price paid handsomely, usually above world prices. And we had a huge population to feed. So nearly 99% of our harvest stayed and was consumed at home.
Until Russia invaded Ukraine early this year.
Suddenly, global prices shot up a quarter higher than MSP. If the Government of India was paying two-grand a quintal, a nervous world began offering two-point-five. Naturally, the farmer swivelled overseas, delighted at making a few extra bucks from, ironically, his not-so-great harvest this year. Yes, that was the fortuitous dichotomy confronting our farmers. A killer heatwave in March had wilted his crop, with the national output falling below 100 million tonnes after almost a decade. Even more sinisterly, government procurement had halved, from over 40 million tonnes to under 20 million. But whoa, exports rocketed over five times, to another decadal high of 7 million tonnes, promising to nearly double in the current year.
What the scorching sun had destroyed, Russia’s aggressive military had given with both arms.
A boy walks through an almost dry river bed of the Yamuna, on a hot summer day in New Delhi, on April 30, 2022. (Photograph: REUTERS/Adnan Abidi)
So, thousands of trucks and wagons, over-laden with the golden grain, snaked their way to India’s ports. Ships were being furiously loaded, and granaries in dockyards got over-stocked. There was much optimistic chatter about hitting an ‘unbelievable double-digit’ as exports could top ten million tonnes, a gobsmacking tenth of local production. Peppy government talk added fuel to this cheerful fire. The Indian Prime Minister grandly told U.S. President Joe Biden that the world need not worry, India’s farmers would feed the hungry on the planet. Ever more, loyal ministers and bureaucrats began to beat even louder drums. “We will encourage, not ban, wheat exports. After all, we’ve got more strategic reserves in our warehouses than we need, so the country’s food security is robust. Go farmer go!”.
In all this cheerleading, our policymakers missed a small but searing set of stats. Wheat inflation was in double digits. Atta (flour) prices were at an alarming Rs 35/kg. The rupee was hurtling towards its lowest ever point of 78/dollar.
A perfect storm was brewing, but one that could have been navigated with sensibly calibrated policies. For instance:
A special plus-MSP bonus of Rs 250/quintal could have equalised local prices with world levels, thereby allowing the government to procure more in the mandis.
A small export tax could have been added to dampen a bit of the outflow.
An even more vigorous tax—say a minimum export price—could have been slapped to ensure that domestic consumers continued to get priority.
So many things I could have done, but clouds … my apologies to Neil Diamond, not clouds, but government policymakers … they got in the way!
Ban! Overnight, wheat exports were outlawed. Notwithstanding a Prime Minister’s commitment. Notwithstanding thousands of trucks stranded on highways, many half-loaded ships marooned in ports, tonnes of wheat beginning to rot in granaries. Notwithstanding nothing, just one big, blunt Ban!
A labourer rests on gunny sacks kept on a handcart, in the old quarters of Delhi, on May 4, 2022. (Photograph: REUTERS/Anushree Fadnavis)
Hey, you would ask, you’ve come so far, but where’s the crypto in this piece? Patience my friend, because this is where we make a tangential contact with crypto, even though wheat cannot be digitised, and crypto cannot be eaten!
Coinbase is the world’s largest cryptocurrency exchange listed in America, worth about $15 billion. With much grandeur, it planned to launch and target India’s crypto-crazy millennials. Several homegrown clones were already minting the mined coins. Innocently, Coinbase said it would use India’s miracle Unified Payments Interface, to facilitate trades.
The Government of India should have been ecstatic. After all, UPI is a pet initiative evangelised by none other than Prime Minister Narendra Modi, easily one of the most spectacular virtual monuments of modern, tech-driven, digital India. The open-source payments platform has grown from scratch to over hundreds of millions of daily transactions in a matter of months, overtaking several older, more sophisticated western platforms. Like Aadhaar, its home-built architecture is mind-boggling, in sweep and scale. Coinbase’s endorsement should have been one more badge of honour for UPI.
But … Ban!
“How can a government-crafted payments gateway be used to trade in virtual assets whose legality is yet to be established? Is Government of India complicit in illegal trading?” – such screaming, ill-informed trolls on social media scared the regulators into slapping a ‘virtual ban’. All banks were ‘informally instructed’ to ‘disallow online payments for crypto trading’, creating a massive policy confusion, the kind that happens only in India.
A representation of the cryptocurrency is seen in front of Coinbase logo. (Photograph: REUTERS/Dado Ruvic/Illustration)
Just consider this utterly illogical policy matrix:
Even as it is yet to reveal its final stand on the legality of crypto through long-awaited legislation, the Government of India taxes crypto trades. Consider whether the government would do a mindless thing like ask smugglers to raise an invoice to run narcotics across the Punjab border! Hey, pay GST, and only then will I throw you in jail for selling contraband?
So crypto trading is legit, you can write a cheque and transfer money from your bank account to buy it, but if you pay online via UPI, then that’s illegal … you get the absurdity of this undeclared ban, right? I mean it’s so patently silly that the regulator cannot possibly mandate this rule in writing, so it’s all ‘nudge-nudge, wink wink’. Astonishing.
Would the heavens have fallen if UPI had engaged with all the stakeholders to draft the rules for trading rather than just … Ban!
It’s a strange dictum that our policymakers swear by: ‘Ban if you do and Ban if you don’t!’
Raghav Bahl is Co-Founder – The Quint Group including BQ Prime. He is the author of three books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, ‘Super Economies: America, India, China & The Future Of The World’, and ‘Super Century: What India Must Do to Rise by 2050’.