British brokerage says wheat export ban for India is “marginally positive”

The ban on wheat exports is only “slightly positive” for the outlook for domestic inflation, a British brokerage said on Tuesday.

Ongoing heatwaves create “significant risks” for wheat production and the government’s surprise move to ban exports will only reduce domestic price concerns at margins, Barclays analysts say.

The already volatile inflation situation has been cited as one of the reasons for the government’s surprise move to ban wheat exports.

Headline inflation accelerated to about 8 percent in April and is expected to remain high for some time to come. Meanwhile, a number of steps have been taken by Indian policymakers to control inflation, such as the dramatic rise in debt rates ahead of the export ban.

“The wheat export ban is slightly positive for the outlook for domestic inflation,” analysts said, adding that a 10 per cent rise in domestic wheat prices pushed headline inflation up 0.27 per cent.

The report says India’s move – which was one of the main suppliers of wheat after Russia’s invasion of Ukraine – is similar to that of Indonesia (which has banned palm oil exports) and Serbia and Kazakhstan (on food grains).

So far, wheat prices in the domestic market have risen only 3 percent, compared to 44 percent worldwide since the attack began on February 24.
The British brokerage said that without sanctions, it would have been difficult for the government to achieve the target of 10 million tonnes without putting pressure on domestic prices, as it had entered the financial year with a buffer stock of only 19 million tonnes of wheat. .

The potential downturn in wheat production this year due to the heatwave could erase the small surplus the country has enjoyed over the past few years, which may have influenced the decision to ban exports, it said.

It further noted that the government has recently reduced the wheat production estimate for FY22-23 from the previous estimate of 111.23 million tonnes to 105 million tonnes.

“We think the export ban was initiated due to tightening of demand-supply dynamics in domestic wheat, which could push up wheat prices and increase food inflation,” it said.