Subhash Chandra Garg, Former Secretary of Finance, on Monday said that India was overreacting to the rise in prices of cereals after the country banned wheat exports indefinitely.
“The export opportunity came thanks to the Ukraine, Russia supplies being impacted and there was an opportunity for farmers to get it, they could have got some upside. I think we are little overreacting to the price rise situation that we are witnessing," Garg said in an interview with CNBC-TV18.
On Saturday, the government banned wheat exports with immediate effect as part of its efforts to control rising domestic prices and as heatwave across the country affects the output. "The export policy of wheat is prohibited with immediate effect," the Directorate General of Foreign Trade (DGFT) said.
The DGFT clarified that wheat exports will be allowed only if the government grants permission to meet the food security needs of other countries based on the request of their governments.
The decision came as a U-turn from the government's earlier plans of increasing wheat exports starting April 1, 2022, to 10 million tons from 7 million tons in the previous year. The country's assurance of raising export — though a small proportion — had provided some support to global prices.
“Government's decision on wheat exports ban is quite baffling and it doesn’t really speak very well of the kind of policies we should be making. The wheat yields are expected to be less by about 4 million tonnes. We were expecting a record production of 113 million tonnes and so, 4 million tonnes doesn’t make much difference when our overall domestic consumption is not even 90-95 million tonnes," Garg said.
According to Garg, the consumer price index (CPI) inflation has more to do with vegetables, spices, edible oils and fats than cereals.
“The Consumer Price Index (CPI) which came at 7.8 percent - there the inflation print is more in three other categories than in cereals. It is more in vegetables, edible oils and in spices. The cereal inflation is still around the average inflation, it is not very high in that sense," he said.
India’s decision to ban wheat export will have significant global implications with several low income developing countries — mainly those from Asia and Middle-East — set to be impacted.
Global wheat prices hit a record high on Monday after India's export ban with the prices of commodity touching 435 euros ($453) per tonne as the European market opened.
Bangladesh, UAE, Sri Lanka and Indonesia are among the countries that would be the worst hit by India's decision on wheat exports.
Garg added that India has not had a good record on honouring contracts and the wheat ban could label it as an unreliable supplier in agricultural exports which could have an impact in the domestic market too.
"India has a serious problem in the way it handles agricultural commodities... It must build its stance based on its position today in world agricultural trade," added Garg.