India’s Grain Stockpiles Key to Modi’s Pre-Election Strategy

Last year, Prime Minister Narendra Modi said India could feed the world. This year, the world’s top rice exporter is instead curbing grain sales, rushing to ease rising food inflation at home as next year’s general election approaches.

(Bloomberg) — Last year, Prime Minister Narendra Modi said India could feed the world. This year, the world’s top rice exporter is instead curbing grain sales, rushing to ease rising food inflation at home as next year’s general election approaches.

With the vote less than a year away, Modi’s government is going all out to build up its food stockpiles. Officials say inventories are adequate and have sought to discourage hoarding, but India has still banned rice exports and is preparing to import wheat, despite being the world’s second-largest producer. 

Modi and his ruling Bharatiya Janata Party, campaigning to be re-elected for a third term, are facing widespread frustration about rising prices, a concern that has brought down past governments. Hungry voters are rarely forgiving. 

“India needs to act pre-emptively in light of its starting point of high food inflation,” said Sonal Varma, chief economist for India and Asia ex-Japan at Nomura Holdings Inc.

The government may scrap a 40% tariff on wheat, which would pave the way for India to import substantial volumes for the first time since 2017. Just weeks earlier, the country’s ban on some rice exports added to stresses on global food markets that have already been roiled by bad weather and the worsening conflict in Ukraine. Rice prices in Asia surged to the highest level since 2008 this week.  

Read more: Heat, War and Export Bans: Global Food Threats Are On the Rise

Officials’ concerns are not unfounded. Wheat prices are 17% higher in Delhi than a year ago. Rice costs 22% more. Tomatoes, part of a trio of crops with an unusual history of causing political pain in India, have soared 450%. 

Food, which makes up about half of the CPI basket, pushed inflation to a three-month high of 4.8% in June. Bloomberg Economics forecasts an acceleration to 6.2% in July as heavy rains damaged some crops, leading to higher cereal and vegetable prices.

That’s despite stockpiles that remain abundant. Food Corp. of India, which buys and stores grain for the government, has more than 25 million tons of rice in warehouses, roughly double its target. Wheat reserves are about 9% higher, data from the state-run company show. 

For Modi, food is not the only headache. About two dozen opposition parties have formed an alliance to try and overpower the BJP. A government that has escaped many other crises unscathed is being criticized for not doing enough to control deadly sectarian clashes in the northeastern state of Manipur. Modi’s rival Rahul Gandhi is also back in parliament after a four-month suspension, and his opposition Congress party has been buoyed by victory in local elections in the southern state of Karnataka.

It’s a situation that leaves little room for error. “No ruling party would like to face inflation ahead of the general elections,” said Rupa Rege Nitsure, chief economist at L&T Finance.

Food Secretary Sanjeev Chopra said last week the government is committed to controlling wheat prices and is considering several options. This includes lowering or scrapping the import duty, or tweaking stockholding limits.

To meet that promise, there’s a good chance India will import wheat from Russia. The top exporter is set to ship a record amount for a second straight year, meaning supplies are likely to be among the cheapest. India, which has historic ties to Russia, is already buying huge volumes of Russian commodities including crude oil and fertilizer.

Traders and millers expect India to import a total of 3 million to 5 million tons of wheat in the fiscal year that started in April. That would be the highest since around 2016-17, when dry weather hurt harvests. The country, which in 2021-22 exported a record amount, began curbing wheat trade last year. 

“A pre-emptive move is a good strategy, both from an economic perspective, and also in light of the upcoming state elections,” Nomura’s Varma said, referring to polls in places such as Rajasthan, Madhya Pradesh and Chhattisgarh. “Adequate cereal stocks will enable the government to sell in the open market and lower cereal prices to bring relief for consumers.”

India’s government will sell 5 million tons of wheat in the open market from the state reserves to control prices, in addition to 800,000 tons already sold, Chopra said in New Delhi on Wednesday. It will also sell 2.5 million tons of rice, he said. 

Restricting exports risks backfiring as it could fuel speculation and hurt farmers, a crucial voting bloc. Authorities should seek other measures to curb prices, according to Poornima Varma, an assistant professor at the Indian Institute of Management in Ahmedabad.

“The only option available to the government is to reduce or remove the import duty of wheat,” she said. “The government will not take any chance as the election is around the corner.”

–With assistance from Ben Sharples, Sanjit Das and Nicholas Larkin.

(Updates to add rice prices and grain sale plan in fifth and 15th paragraphs)

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