The recently imposed ban on foodgrain exports is motivated by a desire to prevent a rise in foodgrain prices. Indeed, poor households in India spend a significant part of their incomes on food; foodgrain price increases hit them hard. However, it is also true that a vast majority of the poor in India are small and agricultural workers. A rise in the foodgrain prices raises their meagre incomes. Does the ban on foodgrains exports help the Indian poor or hurt them?

Our answer to these questions would depend on our time horizon. In the short run, the price rise will certainly hurt the poor, even the rural poor. If the foodgrain prices rise suddenly, it is unlikely that their wages will rise just quickly enough to accommodate this price rise, especially in urban areas. There is no doubt that in the short run the poor will be hurt quite badly. In fact, Amartya Sen’s account of some of the famines in the 20th century is precisely about this sort of sudden rise in the price of staples.

What about the long run? Government policy since independence has been to protect the urban consumer at the expense of the farmer. Farmers are seldom allowed to gain from a strong market demand for their produce. The Essential Commodities Act put additional constraints on farmers, preventing them from taking advantage of market opportunities. Foodgrain production has rarely been a profitable business for farmers outside the original green revolution belt of Punjab, Haryana and Western Uttar Pradesh. The long-run impact of an anti-farmer policy, with low expected returns and consequently low investment in agriculture, is that we have some of the lowest foodgrain yields in Asia. There is widespread agreement among development economists across the world that poverty in India is a result of the poverty of our agricultural sector.  Isn’t that the reason why we have so strongly opposed the European and American subsidies to their farmers during all the recent WTO ministerials? We argued that these subsidies lower international prices, which is unfair to our farmers. This is a very reasonable argument but it hardly makes sense if we are never going to let our farmers benefit from international prices.

... contd.