Juggling Food Prices, Global Markets and Political Heat Before Elections

In recent weeks, India has banned onion exports, restricted sugar diversion for ethanol production, and tightened limits on wheat holdings by traders and retailers.

Srajan Girdonia
New Update
Election food price.jpeg

As Prime Minister Narendra Modi gears up for a crucial general election next year, his government is walking a tightrope between appeasing voters with cheap food and safeguarding India's burgeoning export market. 

The latest chapter in this balancing act is a series of interventions in the domestic markets of key agricultural commodities like sugar, onions, and wheat, sending shockwaves through global markets and raising concerns about India's reliability as a trade partner.

Taming Inflation at Home

In recent weeks, India has banned onion exports, restricted sugar diversion for ethanol production, and tightened limits on wheat holdings by traders and retailers. These moves come on top of earlier export restrictions on rice, wheat, and sugar, which have already inflated global prices and disrupted supplies for major importers, particularly in neighboring Bangladesh.

The sugar market exemplifies the domino effect of India's actions. Already reeling from reduced Indian production due to bad weather, global sugar prices reached multiyear highs. Following the export ban, Bangladesh, reliant on Indian onions, saw prices double overnight, forcing its state-owned trade corporation to scramble for a solution.

Election Pressure, Weather Woes: A Domestic Imperative Drives Policy Decisions

Analysts attribute these interventions to the Modi government's anxiety over persistent food inflation, a major concern for millions of voters dependent on subsidized food. "The concern is how to tame inflation at home, which is not likely to be in a comfortable range," says Ashok Gulati, an agricultural economist. "Domestic politics always wins over economics or even international prices."

Adding to the pressure are erratic weather patterns linked to climate change, disrupting the crucial monsoon season and posing serious threats to crop yields. For instance, India, the world's top sugar producer and consumer, expects a near 10% drop in output this year, raising concerns about potential shortages.

Boosting Sugar Production, Sacrificing Export Potential?

To address the sugar situation, the government is aiming to divert cane juice from ethanol production back into sugar, potentially increasing production by 10%. However, critics argue that such protectionist measures could damage India's hard-earned reputation as a reliable exporter and drive customers towards competitors like Brazil.

"We've created the market, we've created the brand image, but unfortunately we're absent," says Prakash Naiknavare, a leading sugar industry figure. "Brazil will take full advantage."

The existing rice export restrictions have already created concerns about a global shortage, pushing prices up and causing anxiety among major importers. This raises questions about the sustainability of India's approach, caught between the twin pressures of domestic political imperatives and international trade commitments.

Navigating this complex terrain will require a delicate balancing act from the Modi government. Ensuring food security and curbing inflation are crucial for securing voter support, but jeopardizing long-term export potential and global trust could have adverse consequences in the long run. 

Finding a way to address domestic concerns while minimizing disruption to international trade will be key to achieving a sustainable solution and ensuring India's continued status as a major player in the global agricultural market.