India Abruptly Imposes Wheat Export Ban

Reversing course from a previous statement, the Indian government announced it is banning wheat exports. Only wheat exports backed by letters of credit issued prior to its 13 May 2022 Notification can proceed. Just days earlier, according to media reports, the Indian government have indicated it was projecting record wheat shipments of 10 million tonnes in 2022.

In its 13 May 2022 Notification No. 06/2015-2020 announcing amendment of its export policy of wheat, the Directorate General of Foreign Trade (DGFT) of India’s Department of Commerce cited food security risk from “a sudden spike in the global prices of wheat arising out of many factors” as reason for its revised policy prohibiting export of specified wheat products/items.

The Notification permits two exceptions. “[E]xport will be allowed in case of shipments where Irrevocable Letter of Credit (ICLC) has been issued on or before the date of this Notification, subject to submission of documentary evidence as prescribed”. The Notification also allows export on the basis of permission granted by the Indian Government to meet food security needs of certain other countries.

According to widespread reporting days after the Notification, of the 2.2 million tonnes of wheat at port or in transit, only 400,000 tonnes is backed by the requisite LCs, bring into doubt the status of the remaining 1.8m tonnes.

The sudden prohibition has largely brought Indian wheat trade to a standstill. According to its sources, The Economic Times reported on 17 May that some 1.4 million tonnes of wheat is stuck at or destined for India’s west coast ports such as Mundra and Kandla while another 800,000 tonnes or so is at east coast ports such as Kakinada, Tuticorin, and Visakhapatnam. “Vessel loading has stopped at a few ports. Thousands of trucks are waiting to unload at ports without any clarity”, said one trader.

By 24 May, The Hindu BusinessLine reported that the DGFT has discovered that about 60% of the nearly 1,000 LCs it has received seeking a wheat export permit have been found to be backdated.

“Information has been received from sources that fraudulent backdated LCs showing date of issuance as on or prior to May 13, 2022, are being submitted by some unscrupulous exporters for the issue of RCs (registration certificates)”, said DGFT, as quoted in The Hindu BusinessLine, which added that both the LC and message exchange date between Indian and foreign banks should be dated on or prior to May 13.

One Mumbai-based trader told The Economic Times: “”We bought wheat from traders and moved it to ports. Our intention is to fulfil export commitments, but we can’t overrule government policy. Therefore, we don’t have any option but to declare force majeure.”

Another exporter indicated that some global trading houses are in a tough spot as some of their Indian subsidiaries had sold wheat to their regional headquarters in Singapore before securing the necessary LCs.

“I think that the government chose to forgo export earnings in favour of setting off a supply- induced downward movement of domestic prices”, said one retired Indian banker contacted by DCW. “The government can hardly afford to upset its primary support base of influential middle class believed to be numbering around 300 million.”

An informal poll conducted on behalf of DCW suggests that a majority of Singapore traders exporting wheat from India told banks that their exports will slow down for those transactions not purchased under LCs. Many bankers in Singapore said that it will be “business as usual”.