|The government would appear to be in denial on the food front. We have a normal monsoon and so food prices will come down, forcing overall inflation also down to reasonable levels - this has been the official chant. |
Onions have now challenged this comforting hypothesis, the price of the commodity rising above 75 a kg at the retail level. But the government has chosen to rule out shortage as the reason for the hike in prices, blaming it on hoarding.
How did the government suddenly discover onion hoarding ?? If it knew about it, why didn't it act to prevent it? Now, it has banned exports till mid-January, and hopes this will bring domestic prices down, with the help of some imports from Pakistan.
There are no futures markets in onions, to send an advance price signal about supply conditions of the commodity. At about 10 million tonnes of annual output (which works out to an abysmally low 20 grams per day per person, not counting exports), it is not considered a major crop.
However, it is a politically sensitive crop. And it would be a big mistake for the government to ignore the real possibility that onion prices have gone up because of a production shortfall, arising from unseasonal rains. There is the very real possibility that unseasonal rains in northern and western India , combined with poor rainfall in the east, could well make short work of official expectations of good agricultural growth this year.
Unseasonal rains have pushed back sowing in key wheat growing areas, and if the cold season does not obligingly last longer than usual, the yield would suffer, upsetting a long chain of calculations.
The key takeaway from the sudden spike in onion prices is that official complacency on the farm front is completely unwarranted. If vegetable prices go up, that could well be an advance indicator of major food crops also not doing as well as could be expected from a normal monsoon, as measured by total rainfall over the season. We need to redefine a normal monsoon, taking into account spatial and temporal distribution of rainfall. And considerable more policymaking and political attention have to be devoted to raising the aggregate farm output than agriculture has been receiving so far.