Wheat Export Ban: Benefit to the Middle Class at the Cost of Farmers?

The move exposes the Modi government's hypocritical outlook towards farmers’ well-being.

(The ban on wheat exports announced by the Central government recently has divided public opinion. The Quint brings to you expert views on the step’s implications for both farmers and consumers. This is the Counterview. You may like to read the View by Vivian Fernandes here.)

The Narendra Modi government’s ‘consequence-independent’ move of imposing an ad-hoc ban on wheat exports may irreversibly damage India’s reputation as a credible exporter, while exposing the government’s hypocritical outlook towards farmers’ well-being.

Modi government’s ad hoc move to ban all export shipments of cereal with immediate effect, just a day after announcing that trade delegations were being sent to nine countries “for exploring possibilities of boosting wheat exports from India”, is another illustration of how the current government bulldozes policymaking, including for actions with serious consequences – without any semblance of any reasonable logic or coherence to the measures undertaken.

Export of all wheat, including high-protein durum and normal soft bread varieties, have been moved from “free” to the “prohibited” category overnight. Only two kinds of shipments will henceforth 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.

India's Credibility Will Take a Hit

The move has come at a time when India’s consumer price inflation is hitting an eight-year high of 7.79 per cent in April and retail food inflation is surging higher to 8.38 per cent. I explained how inflation is already becoming an ‘invisible tax’ on India’s low-income households and the poor, at a time when these income classes have been suffering the worst possible economic catastrophe.

I also argued in a previous column here that how any approach to check for inflation must cautiously avoid any temptation or trap to inverse or make India’s trade (or industrial) policy move in a more protectionist direction. It seems the Modi government has fallen into that trap with its current move.

Yes, apart from the need to check rising inflation, the poor output yields of ‘wheat’ have got the government worried. The ‘wheat export ban’ decision, according to government officials, has apparently been taken in view of procurement of wheat by government agencies plunging to a 15-year-low, with only 18 million tonnes (mt) bought so far in the current marketing season, as against the record 43.3 mt in 2021-22. While the wheat-marketing season technically extends from April to March, the bulk of government procurement at minimum support price (MSP) happens from April to mid-May.

Still, no matter what the rationale, the government’s unexpected measure to ‘ban’ wheat export shipments in the manner it did is likely to seriously impact its credibility in the international (export) markets to supply almost anything. India accounts for 13.53% of global wheat production, making it the second-largest producer of the crop after Russia.

In the context of the high costs imposed on countries’ balance of payments by the Russia-Ukraine war, many nations turned to India for supplies of wheat over the last few months. India’s wheat exports hit an all-time high of 7.22 mt valued at $2.05 billion in the fiscal that ended on 31 March 2022. Those selling wheat are likely to benefit from higher export prices and enhance profitability from the existing production.

'Anti-Farmer Move'

In India’s scenario, inflation was attributed to keeping its export prices higher, but given the competition – and India’s comparative advantage in producing abundant wheat (making it more of an inelastic trade product) – nations, including neighbouring countries such as Bangladesh, were happy to buy Indian wheat in abundant quantum (see the Figure below to see how Indian exports have risen despite India’s rising export prices and a weakening Rupee vis-a-vis the US Dollar).

Technically, some of these trends, plus a rising demand for Indian products abroad (like wheat and other agri-commodities) must make any ‘export-oriented' policy advocate happy. This should also be making neoliberal, pro-market, policy-oriented agriculturalists and agri-policy advisors content. The controversial ‘farm laws’ were endlessly justified for this reason: to give farmers a better price for their products and enhance production.

Then, what happened?

Ashok Gulati, who fiercely advocated the Modi government’s push for ‘new farm laws’ before and during the Kisan Andolan, calls the government’s current move “anti-farmer”. He says:

“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 (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 in Policymaking

More interestingly, 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 just a 10 per cent higher price than the minimum support price (MSP) of wheat, why is the government not letting them take benefit of improved market conditions?

Does the government not want to augment farmers’ incomes? And that, too, when 800 million-plus people have been given almost free food (rice and wheat) under the NFSA and the PMGKAY until 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 reasoning is, of course, based on sound logic and is consistent with his own policy outlook and views (anyone who has read of his previous work would know). What these observations do is clearly expose the hypocrisy of the Modi Government and its policy outlook towards farmers across India. Without reasonable doubt, there is clear evidence now as to why and how the current government’s aim to ‘economically liberate’ farmers was less centred on allowing them greater market access, or better prices.

What Consequences?

In conventional economic public-policymaking, a ‘consequence-sensitive’ approach to public policymaking accommodates a process of ascertaining both culmination outcomes (ie, representing only the final outcomes without taking any note of the administrative process of getting there) and a set of comprehensive outcomes (ie, taking note of the agency-led administrative processes through which the culmination outcomes come about). Any good public policy, in its design, is observed or seen to be using such a method.

A contrary scenario is the ‘consequence-independent approach’ in policymaking, which the Modi government’s current move (and some previously cited measures) are illustrations of. A consequence-independent approach in policymaking may seem to be concerned with neither of these two outcomes.

A badly designed policy in this regard is seen to take such an approach, in order to maximise economic efficiency while imposing high economic and social costs, resulting in accentuating market failures. The implementation cycles of policies like demonetisation and GST in the past (much like now) reflected a blind quest to maximise growth capacities in a short span while taking a benign, indifferent outlook towards those responsible for implementing the cycle (ie, the agency or the administrative body) and those directly affected by the policy (the people or recipients concerned).

In the Modi government’s track record of the past eight years, from demonetisation, to the ad-hoc implementation of the GST, to the sudden unplanned announcement of a nationwide lockdown (during COVID’s first wave), to the abrogation of Article 370 and the union territorialisation of Jammu and Kashmir, to even the coerced introduction of the now-withdrawn ‘farm laws’, are all illustrations of an ad-hoc, centralised, totalitarian governance model that governs from a consequence- independent policy approach.

Irony of Wanting to Be a 'Vishwaguru'

There is no feedback loop to allow the government to recognise its errors, or correct its ‘way of doing things’ after each policy fails to meet its intended (outlined) objective and ends up harming the economy and India’s political economy landscape at large.

Worse, the government institutes a media-driven axis of ‘narrative control’ to justify its wrongs, without presenting any alternative or coherent medium-to-long term vision for the economy.

Ironically, in its foreign policy posturing, India wishes to be seen as a ‘Vishwaguru’ and an agent of a global ‘changemaker’. During COVID’s peak, without vaccinating its own citizens, the government had launched a massive Foreign Ministry-led programme for exporting its own indigenously produced vaccines to lesser developed nations across the globe and celebrated this as India’s act of goodwill to the world. The nation later realised how ill-thought this move was when the Delta variant wreaked havoc across the nation, killing millions of unvaccinated citizens.

Policymaking Is a Craft

Behaviourally, something similar is reflected in the current move to ban wheat exports after sending its own trade delegations to nine countries “for exploring possibilities of boosting wheat exports from India”. The move may not ‘kill millions’ but can almost irreversibly damage the average farmer’s prospects of gaining in revenue from rising export demand and India’s own reputation as a credible exporter of essential commodities to its neighbours and the world. The German agricultural minister, Cem Ozdemir, in a recent G7 meet, expressed disappointment at India’s unilateral actions. “If everyone starts to impose export restrictions or to close markets, that would worsen the crisis.”

Going forward, a consequence-sensitive approach to policymaking requires that the Modi government consider the instrumental processes involved in implementing a policy and the likely outcomes. It is critical for the government to realise how the craft of policymaking in India must align economic incentives in a way that allows the agency (the executive body) and the people (citizenry) to work in a mutually cooperative way and collectively share the benefits.

(Deepanshu Mohan is Associate Professor and Director, Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities, OP Jindal Global University. He is Visiting Professor of Economics to Department of Economics, Carleton University, Ottawa, Canada. This is an Opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)