Hoping to douse the raging fire of rising onion and potato prices, the Centre on Wednesday brought the two vegetables within the purview of stockholding limits under the Essential Commodities Act, 1955. The Centre has also asked state governments to launch de-hoarding operations to control the prices of both and improve availability. The move followed a decision earlier in the day to hike the minimum export price (MEP) of onions to $500 a tonne from $300. Earlier on June 26, the government had imposed an MEP of $450/tonne for potato. A higher MEP is supposed to make exports costlier and no longer profitable for traders. Given that onion prices have been a major issue that impacted political fortunes of many a government at the state and the Centre, one can understand the element of panic that is reflected in the Modi government’s reaction. However, these measures, at best, amount to treating the symptoms and not the disease.
While hoarding does happen during real or artificially created shortages, the real culprit for this seasonal price rise is the defective structure of marketing of onions and other agricultural produce. Nearly 97 per cent of India’s onion harvest is marketed through 50 major market yards, regulated under the Agricultural Produce Marketing Committee Acts of different states. They ensure that pricing of onion is determined not by supply and demand but through machinations of a handful of intermediaries.
While a concerted campaign against hoarders may have a psychological effect, the government must reform the structure of agricultural marketing. The Agricultural Produce Inter-State Trade and Commerce (Development and Regulation) Bill, 2012, was formulated to integrate the fragmented domestic markets for farm produce into a single national market. It provides a single-point registration for all interstate agricultural trade operations, completely removing the need for multiple registration in each state to buy and sell farm produce. The Modi government should seriously consider reviving this legislation.