India has banned the export of wheat amid rising food prices and inflation. India is committed to providing food security to neighboring countries and other vulnerable developing countries, the ministry of commerce in the notification said.

The present export policy allows specific exceptions to export wheat.  when an Irrevocable Letter of Credit (ICLC) has been issued before or on the date of the notification and when the government of India will allow export to other countries to meet their food security on the request of their government.

An irrevocable Letter of Credit is issued by the buyer’s bank to the applicant that guarantees payment.

It was anticipated that the government would take this decision to cool down domestic prices of wheat and related products as many top supplier countries of essential products have banned the export of such items to cut down domestic prices. Kazakhstan and Serbia have already banned grain shipments, and Indonesia also banned the export of palm oil last month.

Genesis of export ban

Russia-Ukraine War is the main reason behind the ongoing supply chain disruption. Russia is the 3rd and Ukraine Is the 6th  largest wheat producer in the world. The war is causing high wheat prices globally and this scenario is fascinating for private buyers in India. They are buying wheat from the farmer at a price higher than the MSP and exporting this product at a higher price in the global market.  Private players have been exported 9.63 lakh tonnes of wheat till April 21, which was 1.3 lakh tonnes last year in this period. 

Therefore, heat waves across the country have caused a decline in production this year. Wheat crops in Haryana, Punjab, and Uttar Pradesh have been drastically affected by early summer.  The Centre government has reduced its wheat production projection by 5.7% to 105 million tonnes. Though, it had projected 111.32 Metric tonnes for the June end of 2022.

The heatwave and farmers’ reluctance to sell their crops on MSP have curtailed government procurement. The Centre government’s wheat procurement declined by 41% to 178 lakh tonnes till May in this rabi marketing season. The government has purchased only 178.01 lakh tonnes till 10 May 2022-23. It was 433 lakh Metric tonnes last year in this period. Wheat procurement in Punjab declined to 94 lakh tonnes and Haryana 40 lakh tonnes until May 10, whereas it was 132 lakh tonnes and 84 lakh tonnes respectively in 2021-2022 in this period.

Indian domestic inflation is rising. Retail inflation in India surged to 7.79% on an annual basis in the month of April, data from the Ministry of Statistics and Programme Implementation showed on Thursday. This CPI data shows that retail inflation is now the highest in the last 8 years. Apart from that, India’s wholesale inflation (WPI) is also rising. It surged to 14.55% in March 2022.