Barely weeks after Prime Minister Narendra Modi talked about ‘India feeding the world with its grains,’ the government has banned all types of wheat exports with immediate effect to salvage its falling inventories.
“There is a sudden spike in the global prices of wheat arising out of many factors as a result of which the food security of India, neighboring and other vulnerable countries is at risk,” an official notification banning exports said.
The notification was dated May 13, 2022.
Trade sources said the sudden decision to ban all sorts of wheat exports with immediate effect will immediately cool down the market prices of wheat and bring it closer to the MSP of Rs 2,015 per quintal.
The notification also said that the ban will not be applicable to exporters holding Letters of Credit (LCs) which will ensure that big exporters and companies could escape the immediate fallout as most of them enter into long-term contractual arrangements with buyers using LCs.
On Friday, wheat prices in the Delhi market were quoted at around Rs 2,340 per quintal while those at the ports for exports were quoted at Rs 2,575-2,610 per quintal
“This could help the government to boost its procurement from states where it has been lagging as traders and hoarders are sitting on huge stockpiles in anticipation of further rise in prices,” a market participant said.
He said that around 5 million tonnes of wheat in the pipeline which includes 1.4-2.0 million tonnes being held by traders could come for government procurement in the next weeks.
If it so happens, then it will boost the government inventories to 23-24 million tonnes, much more than the current procurement of 18 million tonnes.
"This is a wrong approach (of suddenly banning exports), the Centre should have declared a bonus over the MSP of RS 2015 per quintal at the start of the season itself which would have enabled them to garner an extra 4-5 million tonnes of wheat from farmers and fill their coffers. Sudden banning of exports gives a wrong signal to the market and also global players," a former secretary to the government of India told Business Standard.
Earlier, sources said that the Centre was considering a raft of measures to curb the unabated flow of wheat from India, including a nominal export tax of 10 per cent or making it mandatory for all exporters to register themselves with a competent authority to slow down the pace.
They said a final call on total banning of exports will be taken by the PMO.
Indian traders are believed to have contracted to export around 4 million tonnes of wheat in less than two month of the marketing year, of which around 1.2 million tonnes has been shipped out.
This is nearly 56 per cent of the total quantity of wheat exported from India in FY22.
Export demand from India has seen a surge this year due to shortage of wheat in world markets because of the Russia-Ukraine war.
The decision to stem the flow of wheat for exports barely months after the government went euphoric about India ‘feeding the world’ came after procurement for the 2022-23 season struggled to reach the revised target of 19.5 million tonnes.
This target was itself, almost 56 per cent lower than the original procurement estimate of 44.4 million tonnes.
Procurement dropped as farmers sold their wheat to private traders lured by prices which were higher than the state mandated MSP of Rs 2,015 per quintal.
Government purchases also suffered as overall wheat production in FY23 marketing year dropped by at least 6 million tonnes from an earlier estimate of 111.3 million tonnes.
Officials said that there are fears that abnormally low levels of stocks could keep flour prices high in the coming months as well as crimping Centre’s option to intervene in the market to cool down flour rates.
Wheat flour prices in the local markets have flared up in the last few weeks due to a shortage of wheat.
According to media reports, the all India monthly average retail price of wheat flour (atta) was Rs 32.38 per kg in April, the highest since January 2010, the earliest month for which data are available.
After assessing the falling inventories, the government, a few weeks back, decided to allocate 5.5 million tonnes of rice in place of wheat to states for distribution under the government's free ration scheme (PMGKAY) for five months starting May.
“This will immediately free up around 5.5 million tonnes of wheat which can then be used to build up the stocks,” a senior official had said a few weeks’ back.