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Thursday, December 23, 2010

Onion Tears

On Wednesday morning the price of aam aadmis vegetable - onion touched a year high of Rs 70 per kg.The Government of India in a franatic attempt to contain prices announced a slew of measures ranging from an indefinite ban on onion exports to an attempt to directly sell onions through public outlets.The result a somewhat cooling of onion price but the trend seems to be intact.In the past decades,onion prices have made many a governments bled to death.The most famous being the classical loss of BJP in 19998 to Congress when Onion prices broke through the rooftop and landed a victory to Congress on platter.No wonder ,rising onion prices is the worst nightmare for any political leader in power in India.
While rising onion prices may have drastic political consequences,a bigger question to be debated is the importance of onion as an agricultural commodity.Can onion be given the same importance that is to be given to essential commodities?A closer analysis reveal,onion has never been classified as an essential nutritional ingredient.So why should government put so efforts to control prices of a commodity which merely serves as a culinary pleasure rather than an essential healthy additive to food.Would people of India demand same protection from spiralling prices of turmerics,cinnamon or other pricey spices? Obviously not
A second important point to be considered in our story of onion tears is the role of speculation.Political leaders have often blamed traders and hoarders for rising commodity prices.However noting could be farther from truth.For one speculators can only intensify the price rise to some extent but not be solely responsible for it.Consider for example a commodity,say X.If a speculator hoards a commodity even if enough is available in the market,he will only lay trap for his own death because the excess supply would not make it possible for him to demand a price increase.In a country of 1 billion people its hard to imagine how anything other than demand supply situation can drive prices.
The best solution for the government to improve the price scenario is by taking steps to boost production.For one the government must concentrate on reducing cost of production by converting wasteful subsidies into useful soft loans and research funding.The government has long used steps like farm loan waivers,fertilizer subsidies etc as means to help farmers.However,something the government fails to realize is that subsidies are nothing more than white elephants.A recent UN report sights the wastefulness of these subsidies.An estimate puts the efficiency of such schemes at less than 20%(which translates to just 20% of money actually reaching farmers).The government can instead do away with such subsidies and instead focus on providing soft loans for implementation of newer technologies to boost production.A classical case in this respect is the free power distribution in Punjab.The state spends thousands of crores on power subsidies but the result is decreasing productivity and increased fiscal deficit of state.Free markets demand that government only acts as facilitator in business development.Its high time government starts recognizing agriculture as a business and focus on developing markets,finance and technology for it rather than subsidizing losses.
Perhaps the most important need of the hour is agricultural reforms.Contract farming is still illegal in many parts of the country.The government prefers to keep the farmers slaves of Minimum Support Price and arhtiyas (money lenders) rather than opening large scale window of opportunity for them.A second step needed to be taken is corporatisation of agriculture.Indian agriculture is in dire capital needs and the small Indian land holdings do not make entry of PE and FDI/FII players profitable in Indian agriculture.The plantation and cash crops have richly benefited from corporatisation..why leave others behind?Similarly the long standing battle over GM seeds need to be resolved to improve productivity.Some other areas where government can focus are improved use of IT and improvement of market infrastructure.More commodity exchanges need to be set up to provide farmers alternate ways to sell their produce.Currently most farmers are forced to sell their produce at local mandis at prices dictated by local arhtiyas .
Whatever the government chooses to thing is clear...unless something is done...onion tears of government are not going to dry soon

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