War, weather and wheat

The two back-to-back policy decisions by Prime Minister Narendra Modi’s government of late took everyone by surprise. The first one was, of course, the unscheduled move by the Reserve Bank of India to make loans costlier and the second one was the restriction imposed by the government on the export of wheat. The May 13 move to ban the export of wheat without the approval of the government in fact marked a retreat from Prime Minister Narendra Modi’s boast of the nation’s ability to feed the world and fill the void created by war between the globe’s two big granaries.

No doubt that both the decisions had been taken keeping in mind the runaway rise in the prices of food. But didn’t the RBI and government know the shape of things to come? Why did India have to cut down its own production estimates within weeks of offering wheat to countries facing a shortage of the grain due to supply disruptions caused by Russia-Ukraine conflict? Questions are being raised about the credibility of India’s commitment with many nations condemning the move.

The sequence of events puzzled people. In April, Modi asserted India had enough food for its people and was ready to feed the world from the following day, if the World Trade Organization eased its rules. Trucks loaded with lakhs of tonnes of wheat made beelines on major ports of the country to be shipped outside. On May 4, RBI Governor Shaktikanta Das, in an urgently called press meet, sounded overly concerned about rising retail food prices and announced raising of interest rate to tame inflation. He said if that continued to rise for too long, it could be detrimental to economic growth and financial stability of India.

A little over a week after that, in a surprise move, India announced the ban on wheat exports. India was to export 10 million tonnes of wheat this financial year, up from 7 million tonnes last year.

Within hours of the ban, India also cut down its wheat output estimate for the current year.

All within a matter of less than 30 days. What did lead to that?

Well, inflation has been a prime concern of the RBI and the government from the beginning of the year. But it was thought to be transient and seasonal. It was expected to be tamed on the arrival of bumper new crops to add to India’s buffer. It was only when severe heatwaves stuck entire South Asia, including India, that the wheat problem started to look like a permanent one. This changed the scenario of food inflation and threatened to choke even the domestic supply. The government has been running a large food distribution programme to 86 crore Indians free of cost since the start of Covid-19 pandemic.

The heatwave altered the food distribution mix. Now rice is substituted for wheat in most of the states under the Pradhan Mantri Garib Kalyan Anna Yojana. This has led to another problem – too much pressure on rice. The economists say if the rice crop does not do well due to weather vagaries going ahead, the food shortage could only aggravate.

The heatwave has also threatened to lower the output of wheat in the current season. The government has been conservative in cutting down the wheat output estimate by 5% to 105 million tonnes. Private traders expect the yield to be much lower. President of Punjab Flour Mills Association Naresh Ghai told DH that the output could fall by about 10%.

He also blamed the government for not taking the ground report of the grain situation before coming out with official estimates. “Traders are the backbone of the agricultural marketing set up. They maintain the pipeline of production and stock but the official estimation hardly includes their input,” he said.

If only India’s official estimations were right, it could not have made lofty promises to feed the world.

India’s major wheat destinations are Bangladesh, Sri Lanka, the United Arab Emirates, Indonesia, Yemen, the Philippines and Nepal, according to Nomura. While Russia and Ukraine together account for over 29% of the world’s total wheat exports. India is the second largest wheat producer behind Russia, but its share in world’s export is about 1%.

Egypt, a major buyer of Ukrainian wheat, had for the first time signed the deal for over 61,000 million tonnes of Indian wheat. That commitment will be honoured as the government has partially relaxed the export ban and allowed all stocks handed over to customs till May 13 to be exported.

Emphasizing that the global hunger levels are at a new high, UN Secretary-General Antonio Guterres has urged nations to act together to lift them out of penury. He said the number of severely food-insecure people has doubled in the last two years from 135 million to 276 million with more than a million people living in famine conditions – an increase of more than 500% since 2016.