It was only a month ago when the Centre proclaimed that it would plug the shortfall in global wheat supplies on account of the Russia-Ukraine war. India had contracted to export 3-3.5 million tonnes in the April-June quarter, aiming at 10 million tonnes of exports for FY23. Now, in an embarrassing U-turn, the Centre has banned wheat exports with immediate effect, leading to the withdrawal of about 2-3 million tonnes from a tight global market. What explains this about-turn? Owing to poor market intelligence, India woke up rather late to the fact that its wheat output this season was 10-15 million tonnes lower than last year’s 111 million tonnes. What added to the scare scenario in the domestic market was the low release by farmers of wheat output to the PDS and the open market on account of the attractive international price (double the MSP, at over $500 a tonne or ₹4,000 a quintal), a fallout of the Ukraine war. With April inflation coming in at 7.8 per cent, and food inflation at 8.4 per cent, the Centre hit the panic button by banning exports. While the Centre has relaxed procurement norms to secure higher stocks for the PDS and the market, this may be a case of too-little-too-late; it would have to be matched by a bonus that matches global prices.

The about-turn shows up the lack of coordination between the different ministries in the government. It is inexplicable that the Commerce Ministry was unaware of the output status on the ground when it projected export plans of 10 million tonnes for this fiscal — up from 8 million tonnes in 2021-22 and well above the trend level of 2 million tonnes in preceding years. It ought to have consulted the Agriculture Ministry before going public with its wheat export plans. Meanwhile, the agriculture bureaucracy could have downplayed the export plans and focused more on procurement in a lean year. A focus on exports inevitably dilutes procurement as it pushes up prices making the MSP unattractive for farmers. The ban now may not help anyone. Higher prices globally (India last year accounted for 4 per cent of the global wheat trade of about 200 million tonnes) as a result of India’s exit can translate into price increases at home if farmers decide to hold on to their stocks in the hope of better prices.

Knee-jerk bans and stockholding limits have been invoked with respect to onions, sugar, wheat and rice on earlier occasions. For a country trying to position itself as an agri-exporter trying to break into new markets (agri exports crossed the $50 billion mark in 2021-22), this sends a signal of policy unpredictability which can have a lasting reputational impact. Reliability is important in global trade. However, India has done well to keep a channel open for government-level contracts, with an offer to Bangladesh which accounts for over half its wheat exports. The ban also shows that the Indian state’s traditional suspicion of market forces has not changed. India has a cost advantage in wheat at current prices vis-a-vis its competitors (which worked in its favour in 2021 as well). Sadly, this has been frittered away by the latest policy flip-flop.

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