Basmati farmers of India are facing a price glut due to tensions between Iran and US. As a result, India’s exports to Iran severely hit due to US sanctions and political war escalation.
Declining Exports
President of Federation of Indian Export Organizations expressed concerns for India’s exports due to the escalation in tension between Iran and US. The basmati export from India has almost halved during 2019-20 as Iran alone imported one-third of the produce. India shipped basmati worth Rs 36,000 crore (40 lakh tons) to 100 countries in FY 2019-20. India’s exports to Iran stood at USD 3.51 billion in FY 2019-20 as against USD 13.52 billion import in FY 2018-19.
Reasons for Declining India’s Exports to Iran
Iran turned into a conflict zone after the assassination of General Soleimani in US airstrike. Moreover, no exporter is risking shipment because of delayed payments in Iran. Besides, India’s decision of banning oil import from Iran has dampened the trade.
In addition, the European Unions regulation on basmati rice pesticide residue added to the drop in exports. As a result, exports to Europe has declined from 4 lakh ton to 1.35 lakh ton.
Competition
Export data reveals that rice exports from India have declined by 27% from April to October 2019. Last year, it exported around 12 million tons of rice out of which, 4.4 million tons was basmati. Punjab Rice Miller Association’s official stated that hike in MSP combined with logistic cost has made rice exports non-viable. Further, competition from Vietnam and a ban on exports from Africa has raised the problem.
Other Consequences
India cannot deny Iran’s strategic importance. India meets 73% of its crude oil demand from Iran. Iran turning into a war zone poses a threat to the security of 9 million Indians living there. Moreover, half of India’s LNG pipelines pass through the Strait of Hormuz. Any tanker movement due to conflict will lead to an increase in oil prices globally. Besides, the Chabahar port development could hamper if US Iran tension rises.
To conclude, the current scenario hints towards difficulties in achieving the government’s objective of increasing farm exports to $60 billion by 2022.