Straits Times Jul 21 said “India, the world’s biggest rice exporter, banned shipments of non-basmati white rice to maintain domestic prices at comfortable levels ahead of the general election due in early 2024.” This is typical msm of to reprint in toto from news aggregators sans research, internal analysis and input.
The economic background – yes, India has been hit hard by high inflation, as high as 15%, much higher than most countries reeling from consequences of pandemic lock down and the Russo-Ukraine war. A contributing factor is the weakening of the Indian Rupee..
This event requires examining the reasons for the ban..
The lazy explanation is the political one which ST accepted lock stock and barrel. Everybody who knows India knows the bugbear of their election is vote buying. An “India-First” government ban on rice export now hardly matters 8 months later in the heat of election..
India is the largest rice exporter in the world. It has 40% of the rice export market which works out to 22m metric tons. Indian rice is the cheapest in the world due to its lower cost of production. With the ban, 22m m/t of rice will be dumped into the domestic market and prices will be forced down. And then what? Unless Indians take to 7 meals a day, huge though their population is, they can’t consume all those extra rice. The huge glut of rice will not just bring down the price of rice, it will collapse the industry. Farmers go bust and eventually much of the land under rice production will be diverted to other crops. Its a natural consequence. Eventually, after years, equilibrium returns with optimum production levels and fair market price..
In the meantime, India commits seppuku as it kills a major export earner. Lesser foreign currency inflow means weaker rupee leading to upward pressure on inflation. In the longer term the export ban is suicidal. It begets the question – why do it? What is the real reason?.
Could it be the weather? The monsoon season started very late this year. This means lesser and late sowing in the traditional July/August months leading to lesser harvest in October/November. A ban on exports in expectation of prices rising due to poor harvest makes a lot of sense. However, this can be ruled out. Firstly, India did not explain the ban is a temporary move. It would have done so to minimise goodwill damage. Secondly, India has a huge rice stockpile that can ride over this hit from nature. Lastly, the vagaries of nature is nothing new to India. This one is no different..
Is there any other possible reason? Is there any boss bigger than the Prime Minister of a land of 1.3b people that Modi has to bow to? Yes. It is the World Trade Organisation..
WTO has a thick book of rules and regulation that all member countries abide by. By and large, countries surrender a chunk of their sovereignty in joining such international organisation. In agriculture, WTO mission is to maintain price stability and food security. There are certain rulings with regards to public subsidies to farmers. Governments are constrained by the extent of support they can provide to the agriculture sector. In this regards, India had been at conflict with WTO for many years..
India has a huge stock-holding scheme for rice. The government buys up massive amount of rice for 2 purposes. (a) it has a distribution scheme where the underclass buys from government outlets at below market prices. (b) due to massive production capacity, domestic prices are suppressed. When government purchase for their stockpile, they subsidise farmers by paying a higher price than the market..
This has brought India into conflict with WTO for many years. WTO holds the view India is manipulating price of rice with high subsidies. A WTO “peace clause” bought India some time to sort out the problem. India had proposed its rice be moved to a category that indicate subsidies do not distort trade, or cause only minor disruption. This was rejected by controlling member countries. And who are these? Western grain-producing countries..
This conflict came to a head because the “peace clause” expired in 2023. India has no choice but to withdraw its rice from the international market. This is the only logical reason for India’s drastic move. .
Straits Times reporting reminds me of a comic incident. In younger days when I was a junior in a foreign bank in Singapore, we had an economist. In those days banks used their foreign branches to collect economic and political intel of respective regions which are submitted to Head Office for compilation into some review book. Our economist’s time was spent scouring newspapers, cutting extracts, photo stating them, and then binding into booklets for weekly submission to HO. No analysis, no reviews or opinions from him. One day, my colleague, an office boy, cheekily asked him, “My X, is your job just to cut and paste only? If like that, I can also do what.”.
A parting shout out :
Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
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