Control Issues

WHEN INDIA STOPS the exports of onions as it has done now, then the neighbourhood suffers. On Tuesday, a New York Times report had this to say, ‘In Dhaka, the teeming capital of Bangladesh, the price of onions is out of control, jumping 700 per cent in recent months and doubling in the past week alone. One street vendor said people were so angry at him for his prices that they called him a “bandit.” To spare himself the stress, he said he just stopped selling onions. Other vendors have done the same. In the past few days, onions have vanished from many of Dhaka’s streets… In Nepal, people are hunkering down for a long and gruelling onion crisis. Last year, the country imported 370 million pounds of Indian onions. Now the onions aren’t coming in.’

The ban in exports comes as result of a steep increase in prices, which itself followed crops being damaged by rains. Onion prices are a touchy subject for governments. In 1980, Indira Gandhi used it to return to power. And politicians might not remember the lessons of good economics but bad politics remain forever with them. Any bar on onion exports means the anger of farmers, but on the other hand is the consumer, which is all the Indian population. They will tolerate most things from their Government but draw the line at food prices. Keeping it under control does not get the Government extra votes but a large rise is punished swiftly.

Other than the survival of politicians, there is really little economic justification for the calibration of onion prices beyond what the market dictates. It is not an essential commodity in the kitchen though governments do make it legally so when necessary. In the Indian diet, it is no more than a habit and, were all of India to be deprived of onions for the next six months, nothing drastic would follow (as against, say, making south Indians replace rice with wheat, which would start a civil war).

The state trying to control onion prices is a remnant of a socialist economy that just refuses to withdraw its tentacles from agriculture. In the process, farmers remains in a limbo where sops and subsidies entrap them in the occupation while the dynamics of the market don’t allow them to improve their lot. The rationale for such policies should have ended, or been tapered off, once the socialist experiment was recognised to have failed but its effects on onion cultivation was illustrated in a Times of India article this week. It noted that India is the second largest producer with ‘almost 27 per cent of the global acreage for onion cultivation’. But we are a really inefficient producer getting a yield of 17.17 tonnes per hectare as against 66.82 for the United States. ‘The US, which is not even in the top 10 onion producers, has a yield nearly four times that of India’s,’ said the article. Many countries in the world can make more onions in less land and stopping Indian exports is a good incentive for them to get interested in taking over the market from India.

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