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Know your onions

The rising price of onions — a highly political agricultural commodity — is causing public alarm again. The government has, wisely...

October 25, 2005 12:00:00 am

The rising price of onions — a highly political agricultural commodity — is causing public alarm again. The government has, wisely, decided to import onions to bring down its price. Since the government continues to impose restrictions on the import of agricultural items the price of farm products — instead of being perceived as commodities whose prices fluctuate with demand and supply conditions in the market — has become a highly political issue. Their prices need to be depoliticised. Indeed the government does not even have to be set prices. Whenever it interferes with the price of a commodity, people correctly see it as a consequence of government policy.

The canalisation of the import of a commodity requires the commodity to be imported through a government agency rather than by businesses who see a price differential, choose to import it, and thus help control prices. The large orders that need to be placed when a big decision to import a commodity whose import is canalised, often has an impact on world prices. This acts as an argument against the import. There are now rumours about onion prices abroad rising in expectation of India’s large import order. Regardless of whether they are true or not, they highlight the problem.

The solution is to free the import of agricultural commodities. Let hundreds of businesses all over the country perform the useful role of watching prices, looking for price differences and importing products whenever there is an arbitrage opportunity. They will perform a function useful for India and avoid dilemmas for ministers like Sharad Pawar. Today, he doubles up as minister of agriculture and minister for consumer affairs. While, on the one hand, higher prices help producers, and a minister for agriculture may welcome such a trend, a minister of consumer affairs has to look after the interest of citizens and ensure reasonable prices. So Pawar must surely be torn between his two roles. Letting the decision to import be taken by hundreds of Indians all over the country will surely make his job easier in the long run.

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First published on: 25-10-2005 at 12:00:00 am

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