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Why India bans Wheat exports

  • Published
    14th May, 2022
Context
  • The Annual consumer price inflation (CPI) has hitting a near eight-year-high of 7.79 per cent in April and retail food inflation (RFI) surging even higher to 8.38 per cent.
  • Export of all wheat, including high-protein durum and normal soft bread varieties have been moved from “free” to the “prohibited”
About

What is the issue?

  • Low wheat procurement: the reasons behind the low procurement of wheat this year;
  • The first is “on the basis of permission granted by the Government of India to other countries to meet their food security needs and based on the request of their governments”.
  • The second is exports under transitional arrangements, where irrevocable letters of credit have been issued.
  • The yield losses from the sudden spike in temperatures from mid-March, which impacted the standing wheat crop when it was in the crucial “dough”.
  • More exports: India’s wheat exports topped an all-time-high of 7.5 mt in the fiscal ended March 31, 2022.
  • Hence has led to the low stocks or the domestic consumptions.
  • High Temperature impacts: The month of March and April time is when the wheat kernels accumulate starch, protein and other dry matter, with maximum temperatures ideally in the early 30 degrees Celsius range to permit optimal grain filling and weight gain.
  • But temperatures crossing 35 degrees in mid-March and 40 degrees by the month-end resulted in premature ripening and shriveling of the grains.

What is CPI?

  • Consumer Price Index or CPI is the measure of changes in the price level of a basket of consumer goods and services bought by households.
  •  CPI is a numerical estimation calculated using the rates of a sample of representative objects the prices of which are gathered periodically.
    • The CPI captures changes in price level at the consumer level.
    • Changes in prices at the producer level are tracked by the Wholesale Price Index (WPI).
    • CPI can capture the change in the prices of services which the WPI cannot.

How CPI is calculated?

  • The Consumer Price Index or CPI assesses the changes in the price of a common basket of goods and services by comparing with the prices that are prevalent during the same period in a previous year.
  • The formula for calculating CPI is:
    • CPI = (Cost of market basket in a given year / Cost of market basket in base year) x 100

Impacts of banning wheat exports

  • Less Minimum Selling Price (MSP): The Russian attack on Ukraine is causing a significant disruption to oil and gas supplies, as well as to wheat.
  • This is an opportunity for the Indian government to dispose the piles of wheat rotting in FCI godowns.
  • But there is a risk that in doing so, the government will also misuse this occasion to ban wheat exports.
  • If low procurement and depleting public stocks were a concern and stopped the government from offering a Rs 200-250 bonus over the MSP (of Rs 2,015 per quintal) to farmers.
  • The ban on exports is an implicit tax on farmers.
  • Risk to food security: wheat is now become a major issue for geopolitical unrest in whole of the central Asia and India too.
  • Harm the India’s global image: It also sought to deflect likely criticism over the about-turn in policy from claiming to be able to “feed the world” in the wake to the Russia-Ukraine war, to stopping all shipments overnight by reiterating the government’s commitment
  • Hence disrupting the global supply chain.
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