Days after putting a ban on wheat exports, the government announced curbs on export of sugar which has been placed under ‘restricted’ category with effect from 1 June 2022. The second largest exporter of sugar in the world will now be sending sugar shipments worth 10 million tonnes till the end of the season on 31 October this year.

The government notification announcing export curb maintained sugar mills and traders who have specific permissions from the government will only be able to export sugar (including raw, refined and white sugar) till 31 October. The restriction, however, is not applicable for exports to the European Union (EU) and the US under CXL and TRQ (Tariff-Rate Quota). 

On the metal side, the government’s fire-fighting strategy to cool inflation has seen the inclusion of steel, with decks cleared for export restriction vis-à-vis duty adjustments. On 22 May, India announced an increase in duty on exports of iron ore, up to 50 per cent from 30 per cent, and imposed an export duty of up to 15 percent on some steel intermediaries. Steel prices in last two years have touched the roof globally rising to almost double since their March 2020 level.

Furthermore, the government has also made excise duty cuts on petrol, diesel, and coking coal in the recent past. Another critical decision pertains to edible oil wherein duty-free import of 2 million tonnes each of crude soyabean oil and crude sunflower oil per year for two financial years (2022-23 and 2023-24) has been allowed. The change in tariff rate quota became effective on 25 May and they will remain valid till 31 March 2024. In terms of inflation management, the other oil is an equally major pain point for India, as 60 per cent of its demand is met through imports.

Like several other commodities, the price of edible oil has significantly surged internationally and domestically over the last one year. Russia’s invasion of Ukraine has further aggravated the price trends as it has choked the supply of sunflower oil from the region. The recent ban (now revoked) by Indonesia to curb palm oil exports had also created unprecedented nervousness in the market. 

Good news for consumers 

With the prime objective of cooling down the mounting inflation, some of the steps taken in the recent past are expected to show results in the immediate term. For instance, going by an estimate of a research agency, the reduction in fuel taxes could help reduce inflation directly by around 20 basis points in the coming months. 

Similarly, the announcement of new measures on edible oils and Indonesian decision to lift ban on palm oil export has already led to downward revision in oil prices in the domestic market. In the past week, the price of mustard oil in the domestic market has declined by Rs40 per container (15 kg) and similar trends have been visible across several other categories of edible oil. Groundnut (solvent refined) has slipped by Rs25 per tin (in the Rs2,600-(es)2,800 per tin trajectory last week).

In a recent interaction with a national daily, Angshu Mallick, CEO, Adani Wilmar, projected a 10-15 per cent fall in edible oil prices coming into the effect before this quarter end. “By the end of the June quarter, we should see a correction in edible oil prices,” said Mallick during the interaction. “Prices should surely correct by 10-15 per cent. We have seen the peak, and by June, we will see the market getting corrected”. 

However, as per signals from the industry circles, Indonesia’s lift on exports ban has not fully come into the effect and it continues to remain a cause of concern. On 26 May, the apex body of edible oil industry, The Solvent Extractors’ Association of India, shot off a note to the Indonesian government urging it to clear the supply line urgently.

“Indonesia is heading to a calamitous situation, as palm exports are still not fully operational, despite President Jokowi announcing that they will be released as of 23 May. We estimate stocks have already reached historical highs, surpassing 7 million mt. If unrestricted exports do not start before the end of May, we foresee a situation where all storage tanks will be full and the industry will grind to a halt,” the SEAI note said. 

It further pointed out that the export ban has also forced countries to look at their reliance on Indonesian palm and find ways of making soft oils available at a cheaper price. “India has removed the cess on soft oils for domestic refiners such that palm oil is now more expensive than soybean oil in both China and India thereby hurting demand for palm oil,” the association note further added. “The extent of pricing relief to consumers on edible oil will become clear in a few weeks,” says Ghanshyam Khandelwal, chairman, BL Agro, a leading domestic mustard oil player.

The criticality of steel in manufacturing and construction is no secret to anyone and, therefore, the recently announced export curbs is expected to gradually reduce the prices of many items across the value chain. “Soaring prices of construction raw materials have been a pain point for the industry,” says Aditya Kushawaha, CEO & director, Axis Ecorp, an emerging name in the premium realty segment. “Recently, the government has announced measures like levying export duty on steel and reducing import duty on raw materials used in steel manufacturing, which has brought some relief. 

These measures are likely to soften the steel prices by 15-20 per cent”. Kushawaha, however, also emphasises that the government should ensure that there would be no hoarding of raw materials and regular supply line should be maintained in the market. Incidentally, just before the export curbs on steel was announced, CRISIL in a report had projected modest decline in domestic steel prices during the course of this fiscal.

“The onset of the weak demand season because of monsoon and less lucrative exports mean domestic steel prices should begin easing and ultimately move towards Rs60,000 per tonne by the end of this fiscal,” comments Koustav Mazumdar, associate director, CRISIL Research. In April, domestic steel prices had touched an all-time high level of over Rs76,000, which is 95 per cent over the March levels.

Other side of the story

India is not alone in setting afoot a slew of anti-inflationary measures. However, the representatives of the sectors affected by the recent restrictive moves are obviously calling the curbs and adjustments as unwarranted growth impediments. “The government is encouraging the steel industry to expand capacities and declared a PLI scheme,” rues V.R. Sharma, MD, Jindal Steel & Power, while urging the government to withdraw the decision at the earliest. “But the recent move discourages exports. There must be 2 million tonnes of steel orders in the pipeline where either LCs are established or the sales contracts are signed. Most of the decisions are creating confusion”.

In the last fiscal, Indian producers are estimated to have exported various categories of steel products worth $17 billion. According to an analysis paper released by Credit rating agency ICRA, steel exports curb will have a bearing on 95 percent of India’s finished steel basket. “With domestic mills opportunistically tapping export markets, finished steel exports have so far accounted for 10-11 per cent of India’s finished steel production in the last two fiscals. However, the imposition of the 15 per cent export duty would make exports less attractive going forward, which in turn could exert pressure on domestic steel prices and industry capacity utilisation levels,” the report underlines.

Stakeholders from the agriculture sector seem to be more peeved calling the restriction on commodities like wheat and sugar as anti-farmers. The significant jump in the agri-exports crossing $50 billion mark for the first time last fiscal was seen as the major sign of India’s growing strength in the global agri market. However, the move now has left many disheartened.

“It only shows that nothing has changed in the government’s attitude,” says Ghanwat. “It has again failed to provide farmers benefit of linkage with trends in the international market. Last year, the US and Japan had complained against India for its frequent bans on onion exports”. Pushpendra Singh, a farmer leader, who had opposed farm bills tooth and nail remarks no differently. “You are not allowing wheat and sugar farmers to derive benefit of opportunities in the international market,” argues Singh. “Will you care to compensate them in some way? Say by increasing MSP or handing over some bonus. This sugar export ban will give the mill owners an opportunity to delay the payment of sugarcane farmers,” he contends. 

Noted agri economist Ashok Gulati has called the restrictions shocking and a complete knee-jerk reaction. “Only a month back, Prime Minister Narendra Modi had told President Joe Biden in his inaugural address at the 2+2 ministerial meeting on 11 April that, if the WTO allows India to export grains, it will start exporting from the next day to feed the world!

This step hits adversely not only the credibility of the Prime Minister but also of India as a reliable supplier in global markets. It conveys that India does not have any credible export policy as it can change its stance at the drop of a hat,” he wrote in a recent article published in a national daily. 

IMF’s plea

Incidentally, at the recently held Davos Summit, India’s new export stance surfaced prominently, when International Monetary Fund (IMF) chief Kristalina Georgieva urged India to reconsider its ban on wheat exports. “I do have an appreciation for the fact that India needs to feed nearly 1.35 billion people and I do have appreciation for the heatwave that has reduced agricultural productivity, but I would beg India to reconsider as soon as possible because the more countries step into export restrictions, the more others would be tempted to do so and we would end up as a global community less equipped to deal with the crisis,” she said in a conversation to a news channel.

Commerce minister Piyush Goyal, however, maintained that India’s stance is not unique. “Today, 22 countries of Europe have regulations on exports to protect their food security,” said Goyal. “Different countries in different points in time had to take extraordinary measures in public interest”. His officials, however, clarified that the country is open to consider the demand of countries which are in distress.

“Buffeted by inflationary pressures, the government may have acted in a haste to quickly initiate such measures. While, like other countries, they are well entitled to control the exports and imports of commodities for the benefit of their citizens and consumers ignoring the interest of producers and other stakeholders. At a time when the country’s chip has gone up in the recent past in the ex-im trade, they should have shown some more guts,” says a senior representative of exports fraternity.

But then are also those who strongly believe that the time had come to strike a balance. “India has gained market share in merchandise and services exports over the last two years,” explains Aditi Nayar, Chief Economist, ICRA. “In the current challenging scenario, potential gains in trade need to be counterbalanced with inflationary concerns. This balance needs to be cautiously tread going ahead”.

Ajay Sahai, CEO & Director General, FIEO, also counters the point that India’s image as an emerging international trade partner would take a beating because of recent moves. “It is true that India has fared well when the countries across the world are now favourably looking at India as part of their China plus one strategy,” says Sahai. “But for them, India is attractive for value added products.

Recent restrictions will not make much of difference and we expect Indian exports reaching in the vicinity of $470-480 billion at the end of the fiscal”. Sahai may have emphasised a valid point here, as last year’s top exports from India include engineering goods, petroleum products, gems and jewellery, chemicals and ready-made garments.