Stung by the rise in prices of food products, the Centre has belatedly directed all state governments to take action against traders and speculators, who are keeping onion prices artificially high by taking advantage of the seasonal shortage. The upswing in food prices has not only nudged up inflation, as measured by the wholesale price index, to 6.1 per cent in August from 5.79 per cent in July but also heated up politics. In 1980, the BJP lost elections when soaring onion prices brought tears in consumers. With assembly polls in five states only a few months away and the general elections for Lok Sabha due next year, the onion could come back again to sting political ambitions.
The present crisis is the result of a mismatch of commodities market by the government. The laws to curb hoarding and keep track of supply are not strong enough and are rarely enforced by state governments. In case of onions, the villains of the piece are a few politically connected cartels with a stranglehold on the market. Government bodies like the National Agricultural Marketing Federation of India buy stock from them instead of farmers. A recent study by the Bangalore-based Institute for Social and Economic Change on behalf of Competition Commission of India shows that high prices of food products cannot always be attributed to exogenous stocks and mismatch between supply and demand. There is an almost oligopoly in the trade.
It is time the Centre and states launched a joint operation against hoarding of essential commodities. Simultaneously, they should plan for increased production of fruits and vegetables by investing more in agriculture, which is not being done now. Only better yields and infrastructure coupled with strong administration can tackle the artificial demand-supply gap. States must reform the Agriculture Produce Marketing Committee Acts to allow contract farming, direct marketing and setting up of markets in the private sector. Adequate credit has to be ensured to set up cold storage chains.