Onions cost elections, govt does well to not intervene
Given the electoral significance of onions—the BJP lost the 1998 Delhi assembly elections as retail prices touched Rs 100 a kg—it is commendable that the government is behaving in a responsible manner and is not either thinking of introducing a ban on exports or even putting a minimum export price, something considered quite usual in the past, and not just for onions. While onion prices have risen to around Rs 35-40 per kg at the retail level today from around R15-20 in December, there are several differences between 1998 and today. For one, per capita incomes are around 4.5 times higher, making the impact of any price hike that much easier to absorb. Two, while the expected shortage in the crop, once the late kharif onions come in, is expected to be around 1-1.5 million tonnes, that’s a drop of around 6-7%. As compared to this, onion production fell 15% in 1998. But, and this is the important lesson, thanks to the price signal farmers got in 1998, supplies rose a whopping 47% the next year—bans on onion exports, or anything that mutes the price signal, it is important to note, depresses the supply response and actually makes things worse.
Whatever the reason for the muted government response, this has important ramifications for India’s agricultural exports. As the adjoining column points out, agricultural exports can touch $42 billion this year if the government stops its on-off policies towards farm exports—while agricultural exports are expected to grow 13.5% this year, keep in mind merchandise exports fell 5.95% while services exports grew just 1.7% in the April-November period this financial year. In 2008, for instance, when global foodgrain prices flared, India couldn’t export either wheat or rice due to a ban. When the ban was removed, and global prices rose sharply, rice exports reached a record 7.2 million tonnes in FY12 and 4.7 million tonnes in the first half of FY13; wheat exports touched 2.4 million tonnes in the first half of FY13.
Apart from not having on-off export policies, the other thing Indian policymakers need to concentrate on is to get India’s processing of fruits and vegetables up from the 6% or so levels that they are right now. Take anything you like, from tomato purees to dehydrated onions, and the price volatility is dramatically lower and, unlike in the case of raw vegetables, the difference between wholesale and retail prices is also much lower.