Government Ban On Wheat Exports To Help Cool Prices

The Indian government's decision to ban wheat exports is likely to help cool domestic prices at a time when inflation is at an eight-year high. Higher global prices and increased exports of wheat have pushed up prices of staples like atta to near-decade highs.

To curb further price increases, the government, in a notification dated May 13, said that wheat exports will move to the 'prohibited' export category with immediate effect.

There is a sudden spike in the global prices of wheat, as a result of which the food security of India, neighbouring and other vulnerable countries is at risk, the Directorate General of Foreign Trade said in the notification, explaining its decision. Exports will be allowed where an irrevocable letter of credit has already been issued. They will also be allowed to meet food security needs of other nations at the request of individual governments.

Retail inflation in wheat and atta rose to 9.59% in April, the highest since at least 2015, according to data by the Ministry of Statistics and Programme Implementation. Data prior to that is not available. The rise in prices of wheat and atta led to a spike in inflation in products including maida, suji, rava, sevai, noodles, bread and biscuits.

Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said that the move is justified as domestic food and price security is the priority. However, it will deprive the farmers of a higher price than the minimum support price being offered.

Pushan Sharma, director at Crisil Research, said the ban on export of wheat will arrest the price increases being witnessed, pushing prices towards the MSP. They will still likely trend above the minimum support price.

Agricultural analyst Devinder Sharma said the move was essential to ensure national food security and the government has acted in the right earnest by imposing the ban. The move will help ease prices and, more importantly, help in meeting domestic needs, he said. Whether it cools prices enough or if more measures will be needed remains to be seen, he said.

The pace of price rise in India was largely unjustified given the availability of stocks, said Sharma. Traders and exporters were benefiting from this although not all farmers were selling at higher prices, he said. Farmers in major wheat-producing states such as Punjab were receiving only about Rs 15-20 more per quintal, but those in neighboring states such as Madhya Pradesh were receiving more as they produce durum wheat that is used for making pasta, biscuits, etc.

While the export ban will bring down prices, it will deprive farmers of the extra earnings.

The move will pinch farmer incomes, which have been impacted by both higher cost of cultivation as well as lowering of yields this season, said Pushan Sharma.

The decision to ban exports may have also been prompted by expected lower production of wheat due to lower acreage and yield decline, said Pushan Sharma, adding that government stocks are also expected to be lower compared with a year ago. "Hence, in addition to this ban, the government had also decided to lower the share of wheat under Pradhan Mantri Garib Kalyan Anna Yojna and increase that of rice."