First, it was tomatoes and now it is onions, whose prices are soaring, much to the discomfort of consumers and policymakers. The current price spiral is remarkable for its suddenness. Only two months ago — that too, during peak summer — tomatoes were retailing at an all-India average of Rs 15 per kg. That rate has quadrupled since, even scaling Rs 100 briefly in some places. Even more striking is that onion, till as late as July 21, was selling below Rs 7 per kg at Lasalgaon in Maharashtra. But today it is quoting at over twice that level in the country’s biggest market for the bulb. The second point to note about the price flare-up now is that it follows a protracted period of low rates for producers. Leaving out the last 10 days or so, onions have been trading in Lasalgaon at below Rs 10/kg since February 2016. Tomato growers were similarly battling Rs 5-6/kg prices from November right through mid-June; they have hardly benefitted from present wholesale prices of Rs 40-plus.
There are two reasons for prices going up. The first is the monsoon. Rainfall this time, although normal on the whole, hasn’t been as good and well-distributed as in 2016. While Karnataka, Tamil Nadu and even the Marathwada and Vidarbha regions of Maharashtra are facing drought-like conditions, Gujarat and Rajasthan have borne the fury of floods. This has led to delayed plantings or even necessitated re-sowing of the kharif crop in many areas. The immediate impact is being felt in onions and tomatoes, but the effects on other crops — maize, jowar, groundnut, soyabean, cotton — cannot be ruled out. The second explanation may have to do with un-remunerative realisations, post-demonetisation, in most crops until recently. There is evidence, at least in tomatoes, of farmers cutting back on production as a result. The price of that is now being paid by consumers.
Going by past record, the Centre’s most likely response to rising prices would be to impose restrictions on exports (not allowing shipments below a minimum price) and holding of stocks by traders/processors, alongside allowing duty-free imports or even contracting these through government agencies. We saw this in 2014, 2015 and even 2016 in respect of onions, potatoes, pulses and sugar. While being sensitive to the interests of consumers may be a good thing — and also in consonance with the Reserve Bank of India’s inflation-targeting goals — this clearly cannot be at the expense of producers. Like its predecessors, the Narendra Modi government has shown little commitment to the principles of free trade and liberalisation when it comes to agriculture. Hopefully, the promise of doubling farmers’ incomes by 2022 will lead it to respond differently this time round.