The humble onion is in the news yet again. Prices of the staple vegetable have been rising in recent days across the country, especially in Delhi where it touched Rs.100 a kg on Wednesday. It was only two months ago, in August, that onion prices shot past the Rs.60 a kg mark, forcing the government to take steps to discourage exports while simultaneously arranging to import the bulb from Egypt and China. The government raised the minimum export price first to $650 a tonne and later to $900 a tonne in September when prevailing global prices were less than $500 a tonne, making it virtually impossible for traders to export. That calmed prices down a bit, but they have now rebounded and this is attributed to lower-than-expected harvest due to an extended monsoon that damaged crops in the main producing region in Maharashtra. The State accounts for 30 per cent of onion production in the country. Commerce and Industry Minister Anand Sharma is on record as saying that hoarding by traders is a major reason for the sudden spike in prices. Indeed, it is the price of not just onion but also other staple vegetables such as potato and tomato that has been rising in recent days. Interestingly, the price rise has been the highest in the national capital where elections are just round the corner, bringing back memories of 1998 when the BJP government in Delhi lost power on the issue of rising onion prices.
Going by the large differential between wholesale and retail prices — the latter is at least 50 per cent more than the former — there appears to be some merit in the hoarding argument though the original shortage might have been set off by a genuine fall in harvest. Reform of procurement practices and agricultural marketing is long overdue. Given that it is a State subject, the Centre circulated a model of amendments to the Agricultural Produce Marketing Committee Act a decade ago, but only a few States have amended the Act — Delhi is not one of them. Among other things, these amendments aimed at reducing the dominance of the wholesaler in the marketing chain. The government needs to act quickly to rein in the price spike in the three staple vegetables, not just because its electoral fortunes are at stake but also because of the negative impact it will have on food inflation. High onion prices were a prime factor in pushing food inflation to 18.4 per cent in September, and going by current indications, the picture may not be very different when the October data come in. The Reserve Bank of India will be watching the trends closely. Given the inflation scenario, it is quite likely that the central bank will be forced to hike rates again, which is not good news for borrowers and the larger economy.
