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Business News/ Opinion / Views/  Don’t get into a cat and mouse chase over rice
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Don’t get into a cat and mouse chase over rice

India’s rice export restrictions led to a price barrier to prevent circumvention. Imports by the state may be costly, but are a better way to tide over shortfalls that can stoke inflation

 Our rice exports of 22.3 million tonnes in 2022-23 accounted for over 40% of the estimated 55.6 million tonnes of the world’s total rice shipments.Premium
Our rice exports of 22.3 million tonnes in 2022-23 accounted for over 40% of the estimated 55.6 million tonnes of the world’s total rice shipments.

Close on the heels of a 20% export tax slapped on parboiled rice, India’s government has set a minimum-price barrier of $1,200 per tonne for the export of basmati rice, the premium kind for which the country has a global reputation. In July, it had halted the export of non-basmati rice, an item of mass consumption, while last year it banned shipments of its broken variety. These measures are aimed at shoring up domestic supplies, so that prices are held in check amid worries of a harvest shortfall, with key rice-growing regions left parched by uneven rains this kharif season. After tomato prices surged to gasp-inducing levels and the impact of inflation on household budgets became a talking point, the government can ill-afford more food price spikes as key state and national elections loom. But the tool-kit chosen by the Centre has its own risky effects. By curtailing rice exports, New Delhi deprives farmers of a chance to take advantage of high international foodgrain prices. While policy must shield consumers, particularly the vulnerable, farmers may resent this being done at their expense.

The political repercussions aside, it is the bad economics on display that is of greater concern. A floor price for basmati exports was a response to exporters mislabelling non-basmati rice as ‘basmati’ to evade last month’s ban on the former. Policymakers were caught on the wrong foot as traders found a way around that market intervention, weakening its effect. With a price condition now in place, lending rule-compliance further complexity, the hope is that only real basmati will get shipped, while enough of the rest is available locally to keep this diet staple within easy reach. Yet, there is no guarantee that even this will work. With some account-book jugglery, for example, commodity traders with self-run trading posts or accomplices abroad could still inflate the invoices they raise to comply with the rule and square it off by under-invoicing some other export items. This would further distort the picture, even as the policing required makes more space for inspectors to delve in (or look away). One fix has already demanded another, and this cat-and-mouse chase could go on if real-world incentives outweigh the tools being used to prevent regular paddy from reaching foreign shores. In an ideal world, well-meant rules would not get bent, but, as seen with rice labelling, it is known to happen.

Sudden export curbs also weaken India’s credibility as a reliable supplier to the world. Our rice exports of 22.3 million tonnes in 2022-23 accounted for over 40% of the estimated 55.6 million tonnes of the world’s total rice shipments. This is the biggest share by far, and since a sizeable chunk of it is not basmati, our export holdback sent international prices soaring, casting a shadow on the food security of some countries in Africa and Asia. This does not augur well for our efforts to speak for the Global South. To be sure, India, like any other country, has the right to prioritize self-interest over other concerns. But ad hoc actions like this push sundry importers to look elsewhere. Indeed, this is what the government itself should have done—and still can. It could snap up supplies in the global market and ship them home to help keep local prices cool. This would entail a fiscal cost, of course, but using bulk imports is a less distortive way to hedge the risk of a price flare-up. And our official data would reflect reality unsullied by bent rules.

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Published: 28 Aug 2023, 08:17 PM IST
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