India may allow wheat exports to Indonesia in exchange for palm oil

India may permit the export of wheat to meet Indonesia's food grain demand through an arrangement where the Southeast Asian nation supplies palm oil without any interruption at a competitive rate to address India's concerns over the shortage of edible oil, one of the key factors powering inflation, two people aware of the matter said, asking not to be named.

Although India has banned export of wheat last month to assure its adequate availability domestically even as global wheat prices have skyrocketed due to supply concerns, it has kept the option of exports open through government-to-government (G2G) deals, the two added.

India imposed a ban on wheat exports on May 13 "with immediate effect". Indonesia's ban on palm oil exports on April 28 lasted for three weeks. Palm oil, inexpensive when compared to other edible oils, is a preferred cooking medium in India. In 2020-21, India imported 133.5 lakh tonnes of edible oil, out of which the share of palm oil was around 56%.

While again allowing exports on May 23 amid domestic protests, Jakarta has now put in place several safeguards, and there is no guarantee that the ban will not return, they said.

Indonesia is keen on importing Indian wheat, which is possible only through a G2G deal according to the Directorate General of Foreign Trade's (DGFT) notification on May 13, one of the two people said.

Jakarta's ban on palm oil exports ( Indonesia accounts for about one-third of all vegetable oil exports) majorly impacted Bangladesh, Pakistan and India resulting in a significant price rise of edible oil, the second person added.

"Even though Indonesia has eased exports of palm oil, a G2G deal may ensure that there will be no sudden disruption in supply of the edible oil to India even in future. Besides, it may also ensure a competitive rate," this person explained.

"The government's top priority is to ensure assured and adequate supply of essential food items such as edible oil to calm the inflation," the first person said.

The people cited above and experts said India is highly dependent on import of edible oil and it must secure a favourable supply contract with Indonesia because global geopolitical situation is uncertain and Ukraine war may prolong to push up food prices further.

India's retail inflation surged to a 95-month high at 7.8% in April, which is well above RBI's official upper tolerance level of 6% for the fourth consecutive month. For May, the headline number came in at 7.04%.

"The recent measures taken by the GoI (duty-free imports of 2 mn tonnes each of crude soybean and sunflower oil for two years) and Indonesia's decision to lift the ban on palm oil exports are expected to cool the prices of such items in the near-term. Nevertheless, persistent geopolitical developments and India's high import reliance may prevent an appreciable correction in edible oil prices," an ICRA report on retail inflation outlook said on Friday.

The ministries of commerce, consumer affairs, food & public distribution did not respond to e-mailed queries.