India Imposes 20% Export Duty On Parboiled Rice; Key Highlights Here

Owing to a steep rise in prices, the Indian government in a surprise move imposed a 20% duty on exports of parboiled rice with immediate effect. This development is expected to trim down shipments from the world's largest exporter. Also, the move could further drive global rice prices higher which are already at their highest level since 2011. India accounts for over 40% of the total rice exports of the world. Global food prices have become one of the key concerns of RBI for India's inflation going forward.

It was only last month when the government levied a ban on the export of widely consumed non-basmati white rice, following a ban on broken rice exports last year.

A Mumbai-based dealer with a global trade house told Reuters that the ban prompted some buyers to increase purchases of parboiled rice and lifted its prices to record highs.

The dealer added that now with this Indian parboiled rice would become as expensive as supplies from Thailand and Pakistan. There is hardly any option for buyers now.

Earlier this month, the Food and Agriculture Organization of the United Nations highlighted that when India prohibited exports of semi/wholly milled white rice, the exports of parboiled and basmati rice which accounted for 64% of the country's overall exports, were not affected by this restriction.

India has been the largest single global exporter of rice since 2012, supplying between 22.1% to 40.7% of all types of rice that were traded internationally over the past decade, it added.

In July 2023, the United Nations Food Agency's rice price index rose by 2.8% to reach 129.7 points --- up by 19.7% from its year-earlier and its highest nominal value since September 2011.

In 2022, the country exported 22 million tonnes worth $9.66 billion of rice to 140 countries. Of the total, 8 million tonnes were parboiled rice, while 6 million tonnes were non-basmati white rice, 4.5 million tonnes were basmati rice, and 3.5 million tonnes were broken rice.

RBI's latest minutes of monetary policy for August 2023, hinted that India's headline inflation faces El Nino conditions, volatile global food prices and skewed monsoon distribution.

Governor Shaktikanta Das in the RBI minutes said, "While the vegetable price shocks are expected to correct quickly with the arrival of fresh crops, there are risks to the food and the overall inflation outlook from El Nino conditions, volatile global food prices and skewed monsoon distribution - all of which warrant close monitoring. In the non-food category, crude oil prices have firmed up reflecting tighter supply conditions. Against this backdrop, supply-side measures need to be continued to prevent the spiralling of frequent food supply shocks into generalised economy-wide price impulses."

Das added, "The softening of core inflation (CPI excluding food and fuel) by around 100 bps, from 6.0 per cent in Q4:2022-23 to 5.1% in Q1:2023-24 is a source of some comfort in the face of rising food prices, although it is still at an elevated level."

"Headline inflation has softened from last year's elevated level but it still rules above the target. Our task is still not over. Given the likely short-term nature of the vegetable price shocks, monetary policy can look through the first-round impact of fleeting shocks on headline inflation," Das said.

In July 2023, India's consumer price index saw a sharp rise to 7.44%, the highest level since April 2022. This huge upside is due to a sharp spike in food prices. Food inflation zoomed to 11.51%. Inflation has also breached RBI's upper tolerance limit for the first time since March 2023.

Also, the All-India Consumer Price Index Number for Agricultural Labourers and Rural Labourers increased by 19 points each to stand at 1215 and 1226 points respectively. The major contribution towards the rise in the general index came from the food group to the extent of 18.23 and 18.28 points respectively mainly due to the increase in prices of rice, wheat atta, pulses, milk, fish-fresh/dry, gur, chillies-green/dry, turmeric, garlic, ginger, onion, mixed spices, brinjal, tomato, gourd, etc.