May 16, 2022
Good morning. In today’s either/view, we debate whether India’s ban on wheat exports is a good idea or not. We also look at Maruti Suzuki’s largest manufacturing plant in Haryana, among other news.
📰 FEATURE STORY
India’s Wheat Export Ban – Right Or Wrong?
India is in a unique position given its agricultural prowess. Just as India is often referred to as the world’s pharmacy, we’ve also had ambitions to feed the world. In particular, India was the second-largest producer of foodgrains. Then Russia decided to invade Ukraine and the global market changed.
Now, the Indian government has decided to ban the export of wheat with immediate effect, a controversial decision. As global prices continue to rise amid the Russia-Ukraine crisis, India wants to control domestic prices and ensure food security. However, the decision has not been welcomed by the G7 countries and our farmers.
Context
Second only to rice, wheat is a major staple foodgrain consumed across the country. It is India’s prime staple harvest mainly consumed in the north and north-western parts. Wheat cultivation in India has a long history dating back thousands of years with early transcripts from the Mohenjadaro indicating its prevalence.
Once India got independence in 1947, production and productivity were low. At the time, estimates put wheat production at about 6.4 million tonnes. India had to import wheat to meet its needs. Food production between 1947 and 1960 was so low that there were risks of famine. To the rescue came the Green Revolution in the 1960s. High-yielding varieties of wheat and rice were introduced to alleviate hunger and poverty.
In the immediate aftermath, production doubled. Wheat production increased from 50 million tonnes in 1950 to 79 million tonnes in 1964. This was in no small part thanks to genetically improved varieties of wheat and rice developed by the International Maize and Wheat Improvement Centre (CIMMYT), Mexico, and the International Rice Research Institute (IRRI), Philippines. Their varieties enabled cultivation throughout the year.
Globally, wheat is one of the principal cereal grains produced and consumed. According to the Food and Agriculture Organization, global wheat production in 2019 was 765.8 million metric tonnes on more than 215 million hectares. In 2020, it was 761 million metric tonnes.
The Asia-Pacific is the largest and fastest-growing market for wheat with China and India dominating. In 2020, China led in wheat consumption with 142 metric tonnes and India came in second with 106.6. With their rising population, wheat consumption is expected to increase significantly with increased food demand.
The global wheat market is expected to grow by 4.5% for the period 2022-2027. As the pandemic set in, some countries imposed trade restrictions. This harmed global food security, particularly for wheat. With supply chain concerns, panic buying ensued. Now with the Russia-Ukraine war, the global food market is on edge. The export shortfall from both countries is expected to be 7 million metric tonnes, which is 20-30% of the global exports.
With India’s decision to ban wheat exports, there’s concern that this could further destabilise the global wheat market, in turn affecting the global food supply dynamics. The government wants to control food prices at home, but that could affect farmers and their own ambition of feeding the world.
VIEW: Domestic inflation and food security concerns
While the aim to feed the world is a lofty and noble goal, it hasn’t helped matters domestically. Countries lined up to buy Indian wheat as the Russian-Ukraine war began. Egypt even approved India as its new supplier replacing Russia and Ukraine. As this demand increased, production fell thanks to the heat waves. Wheat prices have thus increased by 15-20%. This is bad news for consumers.
What’s worse for citizens is consumer food inflation has more than doubled since March 2021. Indian wheat is much sought after globally, but the government has decided to put domestic needs first. If more buyers enter the market, the pressure is on India to deliver. While some government policies can help, the weather gods might have a different plan. As Sayantan Bera stated last month, India is facing a crisis and an export ban might be one of the solutions.
So far, this fiscal, India has exported 4.3 million tonnes of wheat. Given inflation concerns, Commerce Secretary BVR Subrahmanyam said there’s adequate stock and the reason for the ban was to keep a check on domestic prices. The government doesn’t want the wheat to go to countries where it might be hoarded. He also reiterated that vulnerable countries shouldn’t be concerned as an export window is still open should they make a request.
Flour mill owners are happy. They’ve been facing issues in getting wheat at reasonable prices. Since the export demand was high, the prices were beyond their reach. The Roller Flour Millers Federation of India (RFMFI) said the government’s decision will help calm the domestic market. It’s President Anjani Aggarwal said, at the current rate of production decline and demand, the country would’ve had to import wheat in a few months.
COUNTERVIEW: Anti-farmer and exacerbates the crisis
Many have described the government’s decision as knee-jerk. It’s also confusing. Last month, Prime Minister Narendra Modi told US President Joe Biden that if the World Trade Organisation (WTO) allowed India to export food grains, it will begin immediately. This could hurt India’s export credibility, not only for food grains but for anything.
The decision is also seen as anti-farmer. It’s no secret that the government and farmers have been at odds over the past couple of years due to the controversial farm laws which were eventually scrapped. However, this decision could now hurt them. With export demand increasing over the past few months, farmers were getting excellent prices. Now, they’ll barely get 10% higher than the Minimum Support Price (MSP). It’s reflective of an urban consumer bias at the cost of farmers.
OECD countries and other large ones like China and Brazil provide net positive support to their farmers. Imposing stock limits on traders and export restrictions basically become an implicit tax on farmers. The decision is also baffling since the government announced free food until September under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). It could’ve instead provided cash under the scheme.
Globally, the decision hasn’t been received too well. Agriculture ministers from the G7 condemned it. German agriculture minister Cem Ozdemir said imposing export restrictions would only worsen the situation. A panicky market could be the greatest danger to the global food supply. Given the shortfall from Russia and Ukraine, it’s up to other countries to step up. With this decision, India has stepped back.
What’s your opinion on this?
(Only subscribers can participate in polls)
a) India’s decision to ban wheat exports is correct.
b) India’s decision to ban wheat exports is wrong.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
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For the Left:
After 20 years Narendra Modi deserves a ‘balanced scorecard’
🇮🇳 STATE OF THE STATES
Largest Maruti Suzuki plant (Haryana) – Maruti Suzuki will set up its largest manufacturing plant spread over 800 acres at IMT Kharkhoda in Sonepat, Haryana. With an investment of ₹11,000 crores, the company did say that any future investment will depend on the country’s automobile sales. The company currently produces cars at its Gurugram and Manesar facilities. Haryana was chosen as the company felt the location was close to vendors and suppliers.
Why it matters: Overall, car sales have slightly declined over the past few years. Chairman R C Bhargava said the market is divided into Bharat and India and if the market in Bharat slows down, growth in India won’t be able to compensate. The company’s biggest rival, Hyundai has an installed capacity of 750,000 units at its two plants in Sriperumbudur, Tamil Nadu.
Attracting Japanese investments (Andhra Pradesh) – The Andhra Pradesh Economic Development Board (APEDB) will conduct a roadshow in Japan and a roundtable meeting with CEOs of Japanese companies in the state. The hope is that it will attract Japanese investments into the state. One example is the state already partnering with Yokohama industries in skill training keeping in mind the rule that 75% of employment opportunities are to be reserved for locals.
Why it matters: In 2015, the state and Japan signed a Memorandum of Cooperation to promote investments by Japanese companies in the state. Last February, chief minister YS Jagan Mohan Reddy invited Japan to invest and partner with the state government at a meeting with Japanese consul general Taga Masayuki. Japanese company SoftBank has already planned investments in the Electric Vehicle segment in the state.
Struggling jute industry (West Bengal) – The state’s jute industry is struggling and the sector isn’t showing signs of recovery. Several mills have suspended operations. Between November 2021 and April 2022, at least 12 mills along the banks of the Hoogli river have shut down. It resulted in 60,000 workers being unemployed, including those of the Reliance and Gondolpara Jute Mill. The state has 70 jute mills, employing lakhs of workers and farmers.
Why it matters: The crisis dates back to September when the Office of the Jute Commissioner fixed the maximum price of raw jute at ₹6,500 per quintal. It resulted in a decline in procurement and mills were forced to shut shop. The non-implementation of the Tariff Commission’s report for fair price B. Twill jute bags has resulted in a ₹1,500 crore loss to the sector. Overall, India’s jute production has been declining over the past decade as the area under jute production has decreased to 6.3 lakh hectares in 2021-22.
Vaccine trials on big cats (Gujarat) – Trials of a vaccine against the canine distemper virus have been successfully completed at the Gujarat Biotechnology Research Centre (GBRC). State officials have approached the National Board of Wildlife (NBWL) for permission to conduct trials on leopards in the state. After this, they’ll administer it to lions. The vaccines will be designed in a way that they can be given through darts, similar to tranquilizers.
Why it matters: The vaccine trial began after 29 lions succumbed to the virus in 2018. Another 37 lions were infected. The general strain of the virus and the one found in the lions were different by about 8%. The vaccine against this is a one-shot dose, whereas the US-based one is a two-shot dose. Despite the pandemic slowing down the process a little, the vaccine was prepared and is ready for trials.
Incumbency factor (Tripura) – To beat the anti-incumbency in the state, the BJP has once again resorted to replacing a chief minister just before the polls. The party replaced Chief Minister Biplab Deb as there was disgruntlement among the state party leaders. The BJP didn’t want to enter the poll season with discontent among the party cadre. It also received information that the party was losing appeal in the state. Manik Shah takes over from Deb and is someone who can unite the cadre and end the infighting.
Why it matters: The BJP did something similar in Uttarakhand and replaced its chief minister ahead of the polls. Deb’s reign as Chief Minister wasn’t all smooth. Veteran leader Sudip Roy Barman led the rebellion against him once Deb took charge of the state. In 2020, Barman led a group of MLAs to meet with the BJP’s high command demanding Deb’s removal saying he was inexperienced and dictatorial.
🔢 KEY NUMBER
$40.2 billion – The record merchandise exports for April. It’s the highest for the first month of any fiscal representing a 30.7% increase from the year before.