Better late than never, it is said. This adage applies aptly to the government’s belated decision to lift the four-year-old bar on the export of wheat and non-basmati rice, as also to remove the cap on the export of cotton. However, the government has put brakes on the export of onions, following a price surge in recent weeks. The export ban last week has paid immediate dividends as onion prices have dropped. But as might be expected, the move has provoked criticism from farmers, traders and politicians in Maharashtra, the key onion-producing state — underlining once again that farmers’ interests are usually sacrificed in order to protect consumers.
The ban on wheat and rice exports, imposed in 2007 as a panic response to a domestic price spurt, should have been removed much earlier, given that grain stocks in official coffers have been far in excess of the space available for their safe storage. The best time to ship out these cereals was prior to February-March, when the global market was facing a shortage of these commodities and prices were unusually high. Export of these items is still viable because domestic prices are lower than even today’s subdued international prices, but also because of factors like proximity to the traditional destinations in South-east Asia and West Asia. Local wheat prices are below the minimum support price in many places in Rajasthan, Gujarat and Uttar Pradesh. It is not clear whether the government will seek to augment domestic supply by releasing subsidised wheat and rice from its overflowing silos. If not, there is the prospect of the diversion of supplies to export markets impacting domestic prices, and export margins too.
The story with the timing of cotton exports is no different; the government has delayed the move till the best opportunity to capitalise on high global prices has been lost. India has emerged in the past few years as the world’s second-largest grower and a major exporter of this fibre. Its retreat from the global bazaar after the imposition of an export ceiling had pushed up the international prices to record highs. However, the global scene has changed dramatically in the wake of the recent slump in the garments market and the consequential dip in cotton demand from the textile industry. As a result, international cotton prices have nearly halved, when compared to their March peak. India’s re-entry in the export market may soften prices further.
As for onions, domestic prices had risen steeply in recent weeks, and the government’s fear has been that the kharif crop (due in about a month) would be sub-normal because of unseasonal rains; if exports continued, onion prices could have risen further and prompted political tremors. Exports had been banned last year too, following another sub-normal crop, and were allowed only after the government hiked the minimum export price.