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Wednesday, January 29, 2020

Don’t cry for onions

Avoid knee-jerk reactions to temporary shortage-induced price spikes. Government must focus on deeper problems

By: Editorial | Published: December 9, 2019 4:20:31 am
Nirmala Sitharaman, Nirmala on onion prices, rising onion prices, Congress Marie Antoinette Nirmala Sitharaman, India news, Indian express The Modi government should focus on problems that shall not pass as easily as onions.

Onions continue to burn consumer pockets, notwithstanding several firefighting measures deployed by the Narendra Modi government.

Since September-end, exports (annually worth almost $500 million) have been banned, stock limits imposed on the trade (wholesalers cannot keep more than 25 tonnes and retailers 5 tonnes), the state-owned MMTC Ltd ordered to import one lakh tonnes (lt) and the requirement of fumigation against pest and disease at the country of exports relaxed.

If all these actions — the income tax department is even conducting nationwide raids on traders to probe any holding of unaccounted stocks — haven’t stopped retail onion prices from doubling to Rs 100-per-kg levels in the last two months, the primary culprit is clearly not “hoarding”, but production. Kharif onion sowings were, this time, affected by deficient monsoon rainfall till late-July.

Even the crop that was planted suffered damage from excess rains, especially after September and extending to November. As a result, the total kharif and late-kharif onion output is officially down nearly 18 lt or 26 per cent; the actual decline could be more.

But it isn’t just onions. This year’s unusual combination of early-season drought and prolonged unseasonal rains around the time of harvesting has taken a toll on most kharif crops. Pulses, soyabean and maize, among others, are trading significantly higher than last year.

Dairies, too, are procuring less, even as the cost of milk has gone up. While some of that is due to a slow start to the “flush” season — animals generally produce more after October, which again has been disrupted by an extended monsoon — there might be structural reasons as well.

Low milk realisations of the past 3-4 years have forced many farmers to reduce herd sizes and underfeed their cattle, particularly calves and pregnant/non-lactating females. Its effects are showing now, with skimmed milk powder rates crossing Rs 300 per kg, from Rs 140-150 a year ago. Simply put, the period of low consumer food inflation — an average of 1.38 per cent year-on-year from September 2016 to August 2019, unprecedented in India — is over.

That, however, isn’t necessarily bad news. Ultra-low inflation isn’t sustainable or even in consumer interest, if it disincentivises producers. The current price increases, after discounting for weather aberrations or factors specific to onion, are more of a correction. Price recovery, combined with the best monsoon rains in 25 years that have filled up all major reservoirs and substantially recharged groundwater tables, will spur ongoing rabi plantings.

That would, in all likelihood, yield a bumper harvest and more than compensate for any kharif shortfalls. There can be nothing better for the economy today than rural incomes bouncing back. And there can be nothing worse than knee-jerk policy reactions to temporary shortage-induced price spikes. The Modi government should focus on problems that shall not pass as easily as onions.

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