Export bans and stocking limits: are they working?

Source: The post is based on the article “Export bans and stocking limits: are they working?” published in “The Hindu” on 18th September 2023.

Syllabus: GS3- Agriculture – issues of buffer stocks and food security

News: The article discusses the Indian government’s measures to control rising food inflation, especially in rice and wheat, and how these actions, like export bans and duties, may have unintended effects, causing market uncertainty and impacting both farmers and consumers.

What is the current inflation situation in India?

Retail Inflation Rate: As of August 2023, India’s retail inflation stands at 6.83%. This figure is notably higher than the desired ceiling of 6%.

Significant Contributor: Food and beverages are pivotal in this scenario. They account for 57% of the retail inflation calculation in India.

Impact of Food Inflation: The food inflation rate, specifically, soared to 9.94%. Such a rapid increase in food prices severely affects the overall retail inflation.

What steps has the government taken?

Wheat Export Ban: In May 2022, the Indian government prohibited the export of wheat in an effort to control its prices.

Rice Export Restrictions:

In September 2022, exports of broken rice were halted.

By July 2023, an export ban was placed on non-basmati white rice.

Stocking Limits: In June 2023, the government introduced stocking limits for wheat traders and millers, ensuring that there weren’t excessive hoardings.

Rice Export Duties:

In July 2023, a 20% export duty was imposed on parboiled rice.

Additionally, in August 2023, a Minimum Export Price of $1,200 per tonne was set for basmati rice.

Export Duty on Onion: In August 2023, onions faced a substantial export duty of 40%.

What are the impacts of the export ban?

Surge in Wheat Inflation:

Post the wheat export ban in May 2022, wheat inflation increased from 9.22% to a high of 15.7% by August 2022.

It further accelerated to a concerning 25.4% by February 2023.

Market Uncertainty: The sudden bans led to unpredictability in the market, affecting both traders and consumers.

Rice Inflation Stagnation: Despite the non-basmati rice export ban in July 2023, when inflation was at 13%, it only slightly reduced to 12.5%.

Consumer Panic: The abrupt export ban of non-basmati rice alarmed not just local consumers but also the African and Indian diaspora in the U.S.

Implications for Farmers: These rapid government measures impacted farmers, who had to face the consequences of these policy decisions.

What should be done?

Well-Strategized Approach: Instead of “knee-jerk” reactions, a well-thought-out strategy is needed to address inflation effectively.

Rational Trade Policy: The policy should aim to balance both consumers’ and producers’ interests, ensuring fair prices without harming the farming community.

Consider Farmers: While making policy decisions, the implications on farmers, who bear the brunt of abrupt actions, must be factored in.

Avoid Sudden Bans: Rather than sudden export bans, which create market panic, a gradual approach, like phased export duties, might be more effective.

Study Impacts: Before implementing new policies, their potential impacts on inflation and the overall market should be closely examined.