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India Resorts to Protectionism as a Placebo for Inflation

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Faced with rising inflation in the world, India has taken drastic measures to control the rise in domestic food prices in their country at the cost of great prejudice against the rest of the globe.

The government of Narendra Modi has decreed a ban on the export of broken rice and imposed a series of taxes on the exit of other types of grains from the country, the Indian Foreign Trade Board confirmed Thursday.

New Delhi also imposed a 20% tax on white and brown rice exports, which constitute up to 60% of the global sales of this grain. Parboiled and basmati rice exports are excluded from the Modi government’s ban.

The news is a bucket of cold water for global grain markets because India is responsible for up to 40% of the international rice trade. The biggest customers for the Indian market are countries in the Middle East and sub-Saharan Africa.

India is a crucial supplier of broken rice to many African countries that consume large quantities of grain. China has also become another major buyer of Indian broken rice, which is used to feed livestock and make rice noodles or wine.

Some exports of broken rice will be allowed until September 15th, but after that, all exports of the cheap grain from the country will be banned entirely.

With the restriction on broken rice exports, India concludes its third restriction to prevent grain from leaving the country, prompted by concerns about dwindling supplies and rising inflation.

In May, India restricted wheat and sugar exports due to concerns that crops were affected by the country’s heat wave. India suffered its hottest season in 100 years, during March and April. Rainfall during the following months was sporadic and insufficient. This affected rice planting, which fell by 13% compared to last year.

While by August 2021, India had around 56 million acres of rice sown, according to data from the Indian Ministry of Agriculture; by 2022, the figure fell to just over 56 million. A drop in planted rice area typically translates into less rice for distribution; however, harvest time will confirm the prediction in October.

The decision to restrict rice exports may cost India its dominant position in the global rice market. Countries such as Thailand or Vietnam may replace the space left by the Modi government’s ban.

Last year, India exported 3.8 tons of broken rice. Between April and June, exports constituted as much as 1.4 million tons, corresponding to one-third of India’s non-basmati rice exports. With current restrictions, grain exports could fall by as much as 50% by the remainder of 2022.

Before the pandemic, India had a grain surplus. Still, with the advent of Covid-19, stocks have declined due to establishment of a government program to distribute free grain to more than 800 million people during the pandemic.

While grain silos were rapidly depleted, other problems were coming to light. The grain distribution at different storage sites was not the same: while some warehouses were close to capacity, others were virtually empty. At the same time, in some warehouses, the grain was in damp places, which led to rot.

Government officials’ control of grain distribution has been inefficient and did not prevent the following inflation. Although India is facing moderate inflation of 6.7% annually during July, the Modi government fears that price conditions will be exacerbated in 2023.

Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica

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