The Narendra Modi government’s decision to ban all export shipments of wheat with immediate effect on May 14, a day after announcing that trade delegations were being sent to nine countries “for exploring possibilities of boosting wheat exports,” is yet another illustration of how the current dispensation bulldozes policymaking without reasonable logic or coherence of the measures undertaken.
The export of all wheat, including high-protein durum and normal soft bread varieties, has been moved overnight from the “free” to the “prohibited” category.
Only two kinds of shipments will now be allowed: exports based on permission granted by the Centre to other countries “to meet their food security needs” and “on the request of their governments”; and contracted exports against which irrevocable letters of credit have already been issued “on or before the date of this notification, subject to submission of documentary evidence as prescribed,” according to a notification by the Department of Commerce.
The decisions comes at a time when India’s consumer price index hit an eight-year high of 7.79% in April while retail food inflation surged past 8.38%. Inflation is becoming an invisible tax on India’s low-income households and the poor when these income classes are already suffering through an economic catastrophe following the pandemic and its mismanagement.
Any approach to check inflation must avoid the temptation to move India’s trade policy in a more protectionist direction. But with its current move on wheat exports, it appears that the Narendra Modi government has fallen for this trap.
In addition to the rising inflation, the poor domestic yield of wheat has also worried the government. The ban on exporting wheat, according to government officials, is because procurement of the cereal by government agencies has plunged to a 15-year-low. Only 18 million tonnes have been bought so far in the current marketing season, as against the record 43.3 million tonnes in 2021-’22.
While the wheat marketing season technically extends from April to March, the bulk of government procurement at the minimum support price takes place from April to mid-May.
No matter what the rationale, the government’s unexpected move to ban wheat export in the manner it did is likely to seriously affect its credibility as a supplier in the international markets. India accounts for 13.53% of global wheat production, making it the second-largest producer of the foodgrain after Russia.
Following restrictions on financial transactions with Russia, many nations had turned to India for wheat over the last few months. India’s wheat exports hit a high of 7.22 million tonnes valued at $2.05 billion in the fiscal year ended March 31. Those selling wheat are likely to benefit from the higher export prices and enhance profitability from existing produce.
In the Indian situation, inflation should have kept its export prices higher. But given the competition – and India’s comparative advantage in producing abundant wheat – several were happy to buy wheat in large quantities.
Technically, some of these trends, in addition to a rising demand for Indian products abroad (such as wheat and other agricultural commodities) should please any export-oriented policy advocate as well as neoliberal, pro-market policy oriented agriculturalists and agri-policy advisors. The now-withdrawn farm laws were endlessly justified for this reason: to give farmers a better price for their products and enhance production.
What happened, then?
Economist Ashok Gulati, who had fiercely advocated the Modi government’s push for the new farm laws, calls the current move “anti-farmer”. He told The Indian Express:
“If the government was so bothered about inflation, it could have gradually filtered exports rather than resorting to a ‘knee-jerk ban’. This could have taken the form of a minimum export price (below which shipments cannot take place) or a tariff. Government procurement of wheat has fallen mainly because farmers are getting higher prices by selling to private traders and exporters. If low procurement and depleting public stocks were a concern, what stopped the government from offering a Rs 200-250 bonus over the MSP [minimum support price] (of Rs 2,015 per quintal) to farmers? If you do that even now, farmers will definitely bring more wheat to you. The ban on exports is an implicit tax on farmers.”
Consumer bias
The current wheat export ban also reflects a deep-rooted consumer bias in India’s trade policies. It is this consumer bias that indirectly becomes anti-farmer. When farmers are getting a price for wheat in the open market that is 10% higher than the minimum support price, why is the government not letting them take the benefit of improved market conditions?
Does the government not want to augment farmers’ incomes? That too when more than 800 million beneficiaries have been given almost free rations (rice and wheat) under the National Food Security Act and the Pradhan Mantri Garib Kalyan Anna Yojana scheme to distribute free grains till September-end.
Is the government trying to protect the urban middle class at the cost of farmers? It is this urban-consumer bias that has kept our peasantry poor.
Gulati’s observations expose the hypocrisy of the current dispensation and its policy outlook for India’s farmers. There is clear evidence now as to why and how the current government’s aim to economically liberate farmers wasn’t so much about allowing them greater market access or better prices.
Policymaking approach
In conventional economic and public policymaking, a fare-thee-well or consequentially-sensitive approach accommodates a process of ascertaining both “culmination outcomes” and “comprehensive outcomes” (taking note of the agency-led administrative processes through which the culmination outcomes materialise).
“Culmination outcomes” represent only the final outcomes without taking note of the administrative process of getting there. “Comprehensive outcomes” take note of the agency-led administrative processes through which the culmination outcomes materialise.
Any good public policy, in its design, must follow such a method.
Contrary to the fare-thee-well approach is the fare-thee-forward or consequentially-independent approach. The Modi government’s current moves, as well as some of its earlier measures, are eloquent illustrations of this. A fare-thee-forward or consequentially-independent approach in policymaking does not appear to be concerned with either of the two outcomes: culmination or comprehensive.
A badly designed policy adopts such an approach to maximise economic efficiency but it also imposes high economic and social costs, resulting in accentuating market failures.
The implementation cycles of policies such as demonetisation and the Goods and Service Tax regime in the past reflects a blind quest to maximise growth capacity in a short span while being indifferent to those responsible for implementing the cycle (such as the agency or the administrative body) and those directly affected by the policy (citizens or the recipients).
The government’s track record of the past eight years is replete with examples of an ad-hoc, centralised, totalitarian governance model.
From demonetisation – when Rs 500 and Rs 1,000 notes were banned overnight in November 2016 – the implementation of the Goods and Service Tax regime, to the unplanned nationwide lockdown in March 2020 when Covid-19 first broke out, the abrogation of Article 370 and the bifurcation of Jammu and Kashmir and the passage of the controversial farm laws, only to be later withdrawn, are illustrative of a consequentially-independent policy approach.
There is no feedback loop for the government to recognise errors or correct its way of doing things after a policy fails to meet its intended objective and consequentially harms both the economy and the political economy.
Worse, the government institutes a media-controlled rhetorical axis of a persistent narrative management to justify its wrongs without presenting any alternative and coherent medium-to-long term vision for the economy.
In its foreign-policy posturing, India wishes to be seen as a vishwaguru, or world leader, and an agent of a global change-maker. Ahead of the devastating second wave of Covid-19 in April-May 2021, the government, without vaccinating its own citizens, launched a massive programme to export vaccines. This was celebrated as India’s act of goodwill for the world. As the Delta variant later claimed tens of thousands of lives of unvaccinated Indians, there was some realisation about how ill-planned the move to export vaccines had been.
Behaviourally, something similar is reflected by the decision to ban wheat exports after sending trade delegations to explore options for wheat exports. The move may not kill millions but will almost irreversibly damage the average farmer’s prospects of gaining revenue from the rising export demand, and India’s reputation as a credible exporter of essential commodities to its neighbours and the world.
German Agricultural Minister Cem Ozdemir, at a recent Group of 7, or G7, meeting, expressed disappointment at India’s unilateral actions. “If everyone starts to impose export restrictions or to close markets, that would worsen the crisis,” said Ozdemir.
Going forward, the Modi government must consider the processes involved in implementing policy and the likely outcomes culminating from its final execution. It is critical for the government to realise how policymaking in India must align economic incentives in a way that allows the agency (the executive body) and the people to work in a cooperative way and collectively share the benefits that accrue.
Deepanshu Mohan is an Associate Professor of Economics and Director at the Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities, OP Jindal Global University.
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