Onions comprise less than 1 per cent of the value of India’s agricultural production. The average Indian consumes less than 800 grams of the stuff per month. Onion is a seasonal crop. Supply traditionally dips during July to September when only the stored winter crop, harvested around March, is available for consumption.
India is the second largest producer of onions after China. We produce more than we need and export around 10 per cent of production unless weather events adversely impact the crop. This year, unseasonal rain during harvesting damaged the winter crop.
Demand for onion, however, is relatively inelastic. First, onions are to palates in the north, central and western parts of India what fish is to Bengal and curry patta and coconut are to the south. Second, onions give a big bang for the buck. A key savory for low-income households, an average family spends around '100 per month on the stuff. If price doubles, the burden is irksome but not a killer.
The fuss over onions is more about politics than economics. The political footprint of onions was established in the 1980 elections. Indira Gandhi, on her comeback trail, after her post-Emergency election debacle, shrewdly used the price-rise in onions to drive home how uncaring of the ordinary person and how incompetent the government of then Prime Minister Chaudhary Charan Singh had become. This clicked. The Congress won 67 per cent of the Lok Sabha seats. In 1998, a sharp price-rise in onions dethroned the BJP government of chief minister Madanlal Khurana in Delhi, thereby establishing a new metric for good governance — the price of onions.
Delhi chief minister Arvind Kejriwal has pointed his finger at the Union government for failing to control hoarding and speculation leading to the current price-rise. The Delhi government flooded the markets in mid-August with onions at '30 per kg. It plans to hold the price just below '40 per kg through public sector retail supply versus a market retail price of '70 to '80 per kg.
But the Union government claims this is too little and too late and more nimble footwork by the Delhi government could have prevented the steep rise in onion prices in Delhi.
The Union government had made available a price stabilisation fund of '500 crore in April 2015, which states could use by contributing an equal amount to buy onions for retail supply at reasonable rates. On July 2, when wholesale prices were still around '20 per kg in Lasalgaon, Maharashtra — Asia’s largest onion mandi — the Union government brought onion under the Essential Commodities Act, thereby enabling stock limits to be enforced on wholesale agencies. It also enforced a minimum export price (MEP) of '30 per kg to discourage exports.
But in today’s intensely adversarial, no-holds-barred competitive politics, no government can ignore a public challenge. And the traditionally business-friendly BJP government at the Center is particular sensitive when “hoarders” in its states are fingered for the price rise. Maharashtra, Madhya Pradesh, Gujarat, Haryana, Andhra Pradesh and Punjab — all BJP/NDA-governed states — account for more than 60 per cent of national onion production.
Increasing the MEP, as the government has done this year, is the standard response. But such intervention, even as it helps consumers by diverting supply to the domestic market, robs farmers of the gains from export. Similarly, importing onions to keep consumer prices low reduces the incentives for farmers to grow onions.
Either of these options is less intrusive than using the public procurement and subsidised retail supply template used for food grain which is highly inefficient and ineffective with cascading losses in procurement, storage, transportation, distribution and retail sale. Sometimes, government-managed imports flood the market after the seasonal supply dip has passed and just as the new crop arrives, leading to disastrous impact on farmers’ incomes.
Why not appoint a private trading agency for marginal but politically sensitive food crops, mandated to import, export or arrange for domestic distribution to balance market-led demand and supply and keeping retail prices within a pre-defined retail trading band, which meets the needs of both farmers and consumers? This is what the RBI does for our currency to avoid excessive volatility.
Private trading agencies would charge a hefty commission for their services, but it would be considerably less than the cost of direct administrative action to purchase, stock and supply onions along the Food Corporation of India model.
Alternatively, use onions as a vehicle for building bridges with our neighbours — particularly Pakistan, which loves the bulb almost as much Punjabis. Why not negotiate a standby, bilateral onion supply agreement to meet onion deficits in either country on preferential terms? A similar arrangement is possible with our larger northern neighbour — China whose onion productivity exceeds ours. Onions can add a savory flavour to Track 1.5-B2B diplomacy.
Isn’t it high time the government bit the political bullet and said no to being bullied about the price of onions? They are not a necessity which the sovereign is obliged to supply. The Jains don’t even touch the stuff.
To show that onions are dispensable, the entire Cabinet should voluntarily say no to fresh onions during the lean period. Prime Minister Narendra Modi could launch a campaign to entreat well-off folks to substitute fresh onions with dried ones or switch to other seasonings during the lean period. This can reduce demand and hence prices for those to whom onions are the only savory they can afford other than salt and chillies.
The core of sustainable living is to adapt to what is seasonally available locally, rather than store, pack, can or transport food at a high cost to the environment.
But the catch is that Bihar is a big consumer of onions. People are unlikely to be amused if they can’t get their daily fix of onion before they go to vote in November. This is one election the BJP needs to win. Visible, strong, centrally managed administrative action to lower retail prices is therefore inevitable to achieve the metric of good governance.
The writer is adviser, Observer Research Foundation
