According to the latest media report, the export restrictions on non-premium rice and wheat are likely to last through March.
Although an official announcement has not yet been made, a number of factors appear to be pushing the administration in that direction. They consist of high domestic cereal inflation, low government grain inventories, and uncertainty over the weather outlook for the two most significant cereal harvests during the rabi (wheat) and kharif (rice) seasons.
The former suffered badly due to a premature heat wave in March last year while the latter could be adversely impacted if this is a weak monsoon year because of the El-Nino effect.
A decision to prohibit exports, after so many contingencies, is not something that should be criticized.
Food security is a strategic goal, and independent nations are free to tweak policies to protect it. But when pursuing such programs, it is important to remember that there are drawbacks as well as advantages.
The impact on agricultural revenues will be the most severe consequence of this. Farmers can lose out on potential revenue when they are prohibited from taking advantage of windfall gains from high prices in either domestic or international markets.
There are two situations when this could hurt more. The terms of trade for farming change negatively if input costs and the prices of other consumables are also rising quickly. Furthermore, price-capping policies deny farmers the chance to recoup their reduced costs under the unfavorable weather condition resulting in crop failure or yields that fall short of sub-par yields.
Such unintended consequences can result in political unrest and adverse effects on rural demand. The administration will be relying on the advantages of low inflation to make up for this discontent.
