After the election defeat, Prime Minister Modi may be forced to change India’s food policy

Mumbai/New Delhi: Prime Minister Narendra Modi faces a political dilemma after losing ground in the last election: how to control food inflation without resorting to curbs on exports and increasing imports – steps that have angered farmers, a significant voting bloc.

Although Prime Minister Modi has managed to retain power in the coalition government, the BJP faces provincial elections later this year in two key farming states – Haryana and Maharashtra – which have a strong farm lobby.

Losses in both states could lower the BJP’s standing in the newly formed coalition government, weakening Modi, who is seeking approval from allies for policy initiatives for the first time since taking office a decade ago.

“It is true that farmers were angry with the government,” said Rampal Jat, national president of the Kisan Mahapanchayat, or farmers’ council. “Knee-jerk policy decisions to ban exports and allow cheaper imports into the country have undercut meager agricultural revenues.”

To keep consumer prices low, the Modi administration has restricted exports of basic commodities such as rice, wheat, sugar and onion from 2022. It also lowered tariffs on pulses and vegetable oils, enabling cheaper imports.

This did not go down well in the countryside, where more than 45 percent of India’s 1.4 billion people make their living from agriculture.

Voter analysis shows that the BJP, which had 201 rural constituencies in the 543-member parliament, retained only 126 of them in the mammoth April-May elections.

Jat said farmers have been made a scapegoat for the government’s inability to deal with inflationary pressures.

Since higher inflation was one of the factors that helped Modi first come to power in 2014, his administration has focused on taming prices and used export restrictions as a useful tool to contain inflation.

However, as of November 2023, food price inflation has remained around 8% year-on-year, mainly due to higher fruit and vegetable prices, which are pushing overall retail inflation above the central bank’s medium-term target of 4%.

Course correction

Analysts and industry experts say that ahead of the assembly elections in Haryana and Maharashtra, the BJP will try to woo the growers in a bid to tip the scales in favor of the farmers.

“There is a realization that farmers cannot be penalized indefinitely for higher inflation and consumers will be hit hard if prices rise,” said Harish Galipelli, director of ILA Commodities Pvt Ltd. “Consumers, especially in cities, have deeper pockets these days, however rural India is suffering.”

India’s food ministry did not respond to a request for comment.

Experts say some decisions are inevitable, such as easing export restrictions on at least two goods. Other long-term measures could also be considered, such as increasing crop yields and raising government-imposed support prices by larger margins, they said.

On Wednesday, the government announced it would increase support prices offered for summer cereals, but the increases are unlikely to reassure farmers.

Last year, the government increased the rice procurement price by 7 percent and this year’s increase is only about 5.4 percent, so it is disappointing, said Ravindra Kajal, a rice farmer from Haryana state.

“I have a feeling that the government will open exports of rice and onions,” said Ashok Gulati, India’s top agricultural economist.

“Since rice stocks are three-and-a-half times the required target and the forecast is for good monsoon rains this year, the government should call for export permission soon,” Gulati said.

Despite the increase in stocks, rice prices are about 7% higher than last year, reflecting the increase in government-set support prices announced at the start of the 2023 planting season.

As the El Niño weather phenomenon threatened to reduce monsoon rainfall last year, India, the world’s largest rice exporter, banned shipments abroad of non-basmati white rice and imposed restrictions on other species.

Currently, state granaries are overflowing with rice stocks and the government is exploring all options, including exports, stock limits, said a government source who, in line with official rules, declined to be identified.

“There is a legitimate reason to allow rice exports and we have urged the government to look into it,” said Prem Garg, president of the Indian Federation of Rice Exporters.

Mad about the onion

In the onion-growing belt of Maharashtra, the BJP lost all eight seats, reflecting anger over export restrictions on one of the most ubiquitous food staples in Indian households.

To placate farmers, Maharashtra Chief Minister Eknath Shinde said last week that he would ask the federal government to remove restrictions on onion exports and instruct state agencies to buy the crop at support prices fixed by the government.

Due to export restrictions, farmers could not recover their production costs, said Uttam Kahandal, an onion grower who said he did not vote for the BJP for the first time in two decades.

Apart from curbs on onion exports, lower cotton and soybean prices have fueled anger against the BJP in Maharashtra. Modest crop procurement rates also hurt farmers in the state.

Government data showed that during the ten years of Modi’s rule, government-set minimum procurement prices for soybeans and cotton increased by 80 and 79 percent, compared to 175 and 115 percent in the previous decade.

“Unless the new government makes serious efforts to address agricultural difficulties, it should be willing to sit in opposition in 2029.” – said Devinder Sharma, agricultural policy expert, referring to the next general elections.