Reason behind Export Bans and Stocking Limits
In August 2023, retail inflation accelerated to 6.83%, which is higher than the ceiling of 6%.
As food and beverages carries a 57% weightage in India’s retail inflation calculation.
Food inflation was 9.94%, rapid acceleration in that segment had a severe impact on retail inflation.
To date, the Indian government has implemented a series of actions aimed at controlling food inflation such as prohibiting the export of wheat in May 2022 and halting the export of broken rice in September 2022.
Additionally, in June 2023, the government imposed stocking limits on wheat traders and millers.
In July 2023, an export ban was placed on non-basmati white rice, followed by a 20% export duty on parboiled rice.
In August 2023, a Minimum Export Price of $1,200 per tonne was set for basmati rice, along with a 40% export duty on onions.
Due to heatwaves, the production of wheat has suffered in the last two years.
Wheat procurement by the government has also been low in the last two cycles.
All this prompted the government to ban wheat exports in May 2022, argues the brief.
Result of Export Bans and Stocking Limits
A policy brief issued by the Indian Council for Research on International Economic Relations said that the recent steps taken by the government to curb inflation, such as wheat and rice export bans and increasing export duties, were “knee-jerk approaches rather than a well-thought-out strategy”.
It argued for a rational trade policy to contain food inflation which takes into account both consumers and producers.
“The sudden ban on wheat exports, instead of bringing wheat inflation down, led to greater uncertainty in the market and wheat inflation surged to 15.7 percent in August 2022, when GOI also banned exports of wheat flour (atta) products,” says the policy brief.
Just before the harvest season, wheat inflation accelerated to 25.4% in February 2023.
Following this, the government off-loaded wheat under the Open Market Sales Scheme at much cheaper prices and announced wheat stocking limits, says the policy brief.
While these measures did bring down inflation, the report argues that the implications of such measures on farmers who bore the brunt have to be taken into account.
In July 2023, when rice inflation was 13%, the government banned the export of non-basmati rice. Yet, inflation remained at 12.5%.
Rather than imposing export duty and gradually increasing its impact, the government called for a ban which created panic among the African and Indian diaspora in the U.S., says the report.
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