The Indian government will likely continue to impose more protectionist trade measures in the coming months as it seeks to lower inflation and unemployment ahead of the April-May 2024 general election, which will further strain global food supplies by reducing exports from one of the world's top agricultural producers. In recent weeks, India's government has enacted export restrictions on various foodstuffs to shore up domestic stocks and quell rising food inflation brought on by an onslaught of climate-related crises that has hammered the country's agricultural output. In July, India — the world's largest rice producer — announced an export ban on non-basmati white rice. In August, the government then imposed a 20% export tax on parboiled rice, as well as a 40% export tax on onions, and is reportedly in talks with Russia on potentially importing wheat at a discounted price as well. Additionally, India — which is also one of the world's largest sugar producers — is expected to impose a sugar export ban in October, which would bring the country's sugar shipments to a halt for the first time in seven years. Moreover, in recent weeks, New Delhi has accelerated longstanding efforts to boost domestic manufacturing under its ''Make in India'' program, including by placing restrictions on computer and laptop imports in a bid to bring new business and jobs to India's technology sector.
- The Indian government first unveiled its Make in India initiative in 2014. The campaign is aimed at creating jobs, increasing India's self-reliance and attracting foreign investment by encouraging Indian companies to develop, manufacture and assemble products at home.
- On Aug. 8, India also restricted domestic manufacturers of military unmanned aerial vehicles from using Chinese components. While this was predominantly a security measure driven by New Delhi's rivalry with and mistrust of Beijing, it also reflects India's attempt to modernize its military and boost domestic manufacturing of military equipment, particularly as Russia's invasion of Ukraine has threatened India's once reliable supply of Russian arms.
The government's pursuit of protectionist policies comes as India is facing high inflation due to poor crop yields brought on by irregular weather patterns. The slew of extreme weather events that India has seen over the past year — including heavy rains, high temperatures and prolonged dry spells — have resulted in high inflation and food prices by disrupting agricultural production and supply chains. India's food inflation jumped from a revised 4.5% in June to 11.5% in July, pushing overall inflation to a 15-month high of 7.4%. While some northern and northwestern states have experienced excessive rains and flooding, southern and eastern regions have seen record dry temperatures, with August reportedly being the driest and warmest month India has seen since 1901. More importantly, reducing unemployment rates is a pressing concern for Prime Minister Narendra Modi's ruling Bharatiya Janata Party (BJP), particularly in rural areas given the importance of rural voters to the BJP. India's rural unemployment rate fell from 8.7% in June to 7.9% in July due to increased demand for agricultural work, though the urban unemployment rate moved up from 7.87% to 8.06% in the same period.
With elections approaching in April-May 2024, the Indian government will likely adopt more short-term policies intended to lower food inflation on top of longstanding efforts to increase domestic manufacturing, which New Delhi hopes will curb high food prices and create jobs. Reducing unemployment and food inflation will be at the core of Modi's policy priorities in the lead-up to general elections in April and May of 2024. To create more jobs, India will likely engage with domestic and foreign companies to increase domestic manufacturing, in addition to restricting more imports of foreign products. But while they may help bring new jobs to India in the longer term, curbing imports of widely used products like laptops will likely drive up scarcity and heighten inflation in the short term. In regards to combatting India's climate-induced food crisis, the government may also implement more temporary export bans for products like sugar to ensure food security and, in turn, decrease food prices and appease voters. Additionally, Modi's BJP could prolong its free grains program (which provides free grains to about 800 million people) up until the April-May polls. Given the success of the program's initial implementation, such an extension would help boost support for the BJP at the ballot box and could potentially alleviate the challenges of high food inflation as well. According to The India Meteorological Department, September will also reportedly bring an average amount of rainfall to India, which — combined with the export bans — will further help mitigate the country's current food crisis by alleviating the agricultural setbacks from August's historically long dry spell. In a survey conducted in July-August, 59% of Indian voters said they were satisfied with the BJP and Modi's leadership, down from the 67% who said so in a January survey. But while Indians are unhappy with their country's current economic situation, the BJP will still likely win a third term next year. This is because Modi nonetheless remains a widely popular figure, and his government's attempts to address people's grievances by extending aid programs and imposing protectionist measures will likely succeed in winning over voters, even if those policies don't immediately or concretely improve inflation and unemployment.
- The free grain initiative was launched in December 2022 in a bid to alleviate food shortages and high food prices caused by the lingering effects of the COVID-19 pandemic. Prime Minister Modi had previously extended the program to December 2023 in light state elections in Modi's home state of Gujarat and Himachal Pradesh. At the time, Modi was facing challenges from emerging regional parties that were making promises of subsidized goods. The extension of the program likely helped the BJP defeat the opposition in the two state elections.
- The Indian government is also developing an electric vehicle policy with the U.S.-based carmaker Tesla that would offer automakers reduced import taxes if they bring some of their manufacturing to India.
- Following the new import restrictions on laptops, foreign tech companies — including the U.S.-based computer manufacturers Dell and Hewlett-Packard (HP) — are expected to apply to India's production-linked incentive (PLI) program to locally produce their products, which will reportedly generate 75,000 employment opportunities.
Given that India is a top global exporter of key food staples like rice, sugar and onions, New Delhi's protectionist measures will likely also increase food shortages and inflation around the world, as existing export bans are upheld and new ones are implemented in the coming months. As the world's largest rice producer, India accounts for 40% of global exports, followed by Pakistan, Thailand and Vietnam (which combined account for 30% of global rice exports). While Pakistan, Thailand and Vietnam will continue to export rice, it is thus unlikely they can substitute India's total exports. The disruptions to global rice supplies will increase demand for — and, in turn, the price of — rice exports, thereby exacerbating already high global food costs. Because rice is a staple food, traders and scientists have warned that a global shortage could create a domino effect by causing shortages of other staples that are often used as rice substitutes, such as corn and wheat — the latter of which is already in short supply following the recent collapse of the Black Sea grain export deal between Russia and Ukraine. According to the U.N. Food and Agriculture Organization, increasing global food costs also risk ''undermining trust in the global trading system,'' which could see other countries preemptively restrict certain agricultural exports in an effort to protect against potential future supply shocks by shoring up their own food reserves.
- According to the International Food Policy Research Institute, 42 countries in Asia and sub-Saharan Africa obtain over 50% of their total rice imports from India.
Source: World View