The rippling effect of India's wheat export ban 

Globalisation - A centuries-old concept, to which the modern “Free India” became familiar in 1991, with the introduction of LPG policies. So, the ‘G’ here refers to the trade-off of goods and services across nations. 

Those who had a comparative advantage in producing one good could export it to other countries for a better price and in turn import other goods in which the other nation might have an advantage in.

Interesting concept right?

Well, as interesting and beneficial as this concept might sound, it came with its own set of intricacies. And when we talk about these intricacies then “high interdependence” leads the table.

Globalization made countries extremely dependent on each other and this in turn at various instances has hurt the economies of countries deeply. For India’s part, the instance of the 1965 war when the US threatened to cut the supply of wheat is a strong example.

Fast forward to 2022, India is the second largest producer of wheat and on the 14th of May, the government of India (GoI) astonished people all across the globe by putting a ban on exports of wheat, which without a doubt is an extremely essential commodity.

Now before heading over to what happened next, let us first understand what inspired this move of GoI.

So, starting off, India’s export touched 8.7 million tonnes during the previous fiscal and before the ban India planned to ship 10 million tonnes.

What happened then? What led to this drastic change?

There is not one but multiple factors which lead to this move

India is experiencing extreme heat waves this year, with temperatures crossing 44 degrees in states like UP and Punjab. This incessantly soaring temperature has reduced the crop yield by 5.3%.

If we move on to damage then 10-15% of the crops were destroyed in the northern part of India.

All of this adversely affected the supply side and when the supply side is affected, what is the expected outcome? - A price rise

The Commerce Secretary was heard citing that some parts of the country saw price rice to the tune of 20-40%. What can be a better reason for a developing country hosting over a billion than inflation and supply constraints?

But whatever might have been the reason, this action led to some serious implications all across the world, which here we have referred to as the “rippling effect of India’s wheat export ban”.

Worsened by the Russian invasion of Ukraine there’s supply shortage of wheat in almost every corner of the world, inducing skyrocketing prices for the essential commodity. Even the mighty red dragon, “China” is not able to keep pace with the rising demand and supply shortages.

The United Nations Food and Agriculture Organisation forecasted that the Russia-Ukraine war could leave around 13 million people undernourished.

And in the middle of this crisis India’s ban came as an even harder blow to wheat supply across the globe. The futures of big exchanges of the likes of the US and Europe have jumped by 6% for wheat, and some even touched the maximum trade limit. Not only that, wheat prices have jumped by 60% this year.

This move was not at all in accordance with the earlier commitments of GoI to promote the exports of their wheat reserves. It was not only criticized by external organizations or countries, but even the country’s own farmers were not happy with this decision.

Why’s that you ask?

Well, it is primarily because before the ban farmers were getting an additional INR 200 per quintal above MSP (Minimum Support Price), which they believed was acting as a compensation for the reduced output due to extreme heat waves. But the ban led to a jarring crash in the prices, which of course affected the welfare of the farmers in a nation where the slogan “Jai Jawan, Jai Kisan (Farmer)” is still prevalent and people are not very happy about it.

But this move was not a complete anomaly as well, as it was pretty obvious that the government will have to do something to curb the rising inflation to safeguard the interest of the masses.

However, similar to all the bitter situations in the world, there is a silver lining here as well. As GoI did not entirely ban wheat exports. India permitted existing issued letter of credits  (LCs) and special requests by countries demanding wheat to meet their food security needs.

Approximately 1.2 million tonnes is set to be shipped as it remains stuck in the cargo. These moves will help in easing the ugly situation of our neighbor countries like Nepal and Bangladesh.

These kinds of relaxations will not completely eliminate the crisis and its adverse effects, but are definitely better than the complete ban on it and would serve the interests of not just consumers of wheat but its suppliers as well.