The Indian export ban on wheat in mid-May attracted a lot of negative attention. For the record, it bans private sector wheat exports, and leaves government-to-government contracts open. In my opinion the widespread criticism of the ban was wrong.
Private wheat traders responded enthusiastically to global demand for wheat after the war in Ukraine. That windfall (for India) was countered by an equally unpredictable heat wave in April, which scorched crops in many regions. The pre-heat wave expectation of our wheat crop was 111 million tonnes. According to the third advance estimate released on May 19, this was reduced to 106 million tonnes, which is only 4.6% lower. Even such a shortfall poses a threat to domestic procurement in terms of export growth.
The wheat procurement season was extended till May 31 in some states and till June 16 in others, to release wheat stocks to farmers in anticipation of higher prices in the future due to increased exports. In the third year of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), which has been an outstanding success in limiting the impact of the pandemic on poor households by the addition of free food grains to National Food Security Act (NFSA) rations, the government was forced to fell. Work and act quickly.
The stoppage of exports would have been less troubling had it not been notified by the Directorate General of Foreign Trade (DGFT) on May 13 before the previous day’s announcement from the same commerce ministry in which the DGFT is nested. Wheat export target of 10 million tonnes. The matter of inter-ministerial crossed wires.
Economists regularly condemn sudden policy reversals because they undermine confidence in government. However, in this case, it was the least disadvantageous of the options before the government. Making an additional cut of free food grains would have been an even more devastating betrayal of public trust. Indeed, on May 20, Kristalina Georgieva of the International Monetary Fund called on all governments to prioritize protecting the poor from global increases in global food prices. PMGKAY does exactly that.
To provide bonus to farmers over and above the minimum support price 250 per quintal, so as to meet export demand, would be a financially disastrous addition to the food subsidy. Between fiscal surveillance on public debt levels and legally enacted inflation monitoring, all avenues were blocked except for a ban on exports of free-flowing wheat. Simultaneously, the ratio of allocation of wheat to rice under NFSA, calibrated to regional preferences, was done to ease the pressure on wheat stocks.
International calls for reversing the ban continue. At a high-level ministerial meeting on ‘Global Food Security: A Call to Action’ in New York, India was reminded of its global responsibilities, particularly in the context of its upcoming role as Chair of the G20. This issue figured prominently in the United Nations Security Council meeting. And of course, it will come up at the G-7 meeting in Germany later this month.
At what point is a democratically elected government expected to prioritize global food security over the food security of its own people? Remember that the immediate trigger was the scorching event of a grain of wheat ripening in foreshadowing of global warming. Where is the climate finance to which the same custodians of global security should have committed themselves?
The setting of global goals and monitoring of individual country contributions cannot be done by a powerful subset of select countries. Countries outside that specific subset should be allowed to withdraw from commitments to the free flow of exports if their domestic imperatives compel them to do so, in response to destabilizing forces set in motion by other countries.
It has been argued by some that wheat has only a small weighting in the Consumer Price Index (CPI). This load averages over an incredibly diverse consumption basket across the country, including large swaths where wheat is not consumed at all. Furthermore, the static base weighting in the CPI does not capture the dynamic adjustments of consumption stocks when a price-inefficient essential wheat experiences a price spike. The NFSA only covers two-thirds of the population.
The wheat export ban indicated the cognizance by the government of the need for several actions to contain inflation. Soon after, the road and infrastructure cess on diesel and petrol was cut by around 7-8% on May 21. That and higher fertilizer subsidies together will cost the exchequer 2.1 trillion. That package will also have other elements of fiscal cost, such as increased subsidies for cooking gas and selected import duty cuts on inputs going into plastics and iron and steel, and subsequent cuts in import duties on cooking oil, more with probability. way.
Critics can obsess over some of the details. But the principle is clear. The global community must be equally involved in the recognition of domestic policy imperatives before other countries in times of wickedness in the global arena.
Indira Rajaraman is an economist