Onion retailing at over Rs 60 per kg can stoke worries for any ruling party, and more so for one that lost an assembly election in Delhi because of “pyaaz” and is bracing for a crucial battle for Bihar. The trigger for the current spiral has been drought in Maharashtra, Karnataka, Rayalaseema and Telangana, which together produce roughly half the country’s onions. The period from late-June to August is always vulnerable to price increases, as the market is predominantly fed by stored onions from the rabi crop harvested during April-May. This time, the storable rabi crop, especially in Maharashtra, suffered some damage from the unseasonal rains and hailstorms in March. The monsoon has also been deficit in the key growing areas, impacting the kharif crop that would normally arrive from mid-September. The prospect of harvesting being delayed and the crop itself not being too good is what has driven up prices — from Rs 1,600 to Rs 5,400 per quintal in the last two months at Maharashtra’s (and India’s) largest wholesale market of Lasalgaon.
The above price spiral cannot really be blamed on the Centre. This government’s measures on onions, if anything, have been rather hawkish — from imposing restrictions on exports and floating tenders for imports, to bringing the bulb under the Essential Commodities Act to empower states to undertake de-hoarding operations and fix stockholding limits. The minimum export price on onion was last raised to $425 per tonne on June 26, when the bulb was trading at not particularly disconcerting levels of Rs 1,500-1,600 per quintal. If despite all this, onion prices are today on fire, the reasons lie elsewhere: There is a clear problem of supply, which has to do with weak monsoon rains in the main onion production belt over and above the setbacks to the earlier rabi crop.
It would be a mistake, however, for the government to use a temporary supply shock as a pretext to bring back controls on stocking and movement of a so-called essential commodity. Past experience shows such measures to be counterproductive at best and anti-farmer in fact. The most recent example of this was in West Bengal, where the Trinamool Congress administration’s ban on export of potatoes to other states last year led to rabi harvest prices this time crashing to Rs 250-300 per quintal and even to farmer suicides. Governments typically move fast in clamping controls apparently in consumer interest, while not showing the same urgency in withdrawing them once the crisis has passed. A better approach is to allow producers to respond to price signals and enable their produce to be traded without fetters. This will ultimately benefit consumers too.