The consumer price index (CPI) for April indicated that inflation in the price of wheat is running considerably ahead of the rate for cereals overall, at 5.96 percent. This might have prompted the decision to prohibit private exports of wheat. Cereals account for 9.67 percent of the CPI, and the ban – which does not apply to government-to-government exports – might be an attempt to slow food inflation, which increased to 8.38 percent in April from 7.68 percent in March. Vegetables (15.41%) and edible oils (17.28%) are the other two food groups that have seen rapid inflation. These three groups account for over 20% of the CPI, and the Union government was looking for policy tools to control prices.
Vegetable price surges are transient, given the duration of the harvest. Edible oils are heavily dependent on imports, and raising acreage for local substitutes can only deliver results with a lag, Wheat has been the target of the government’s food price intervention since output and procurement are both likely to suffer this year as a result of the country’s severe weather. Crop forecasts for this season are lower than anticipated. And procurement is expected to be cut in half from a year ago. This comes after the country’s grain stockpile was depleted for a prolonged period during the epidemic to subsidize food for almost half of the population. The extra rice and wheat subsidies will last through September. By swapping one for the other, the subsidies may have been made more efficient. Higher procurement prices would have also helped farmers and dealers bring in wheat inventories that have been lying idle while world prices have risen.
The decision by India, the world’s second-largest wheat producer, has had an immediate impact on worldwide prices, which hit a new high shortly after the announcement. During a worldwide crisis, exporting food inflation does not help the country’s standing as a trustworthy trade partner. It also does not sit well with farmers whose livelihoods are being threatened by rising costs.