1. IE Edit: Onion prices have crashed because government band-aid is a poor solution

IE Edit: Onion prices have crashed because government band-aid is a poor solution

There is enough evidence to show that excessive regulation has hurt not just agricultural productivity but also farmers and, eventually, consumers.

By: | Updated: May 2, 2016 11:52 AM
agriculture-l Be it inputs such as fertiliser, which is governed by one of the most complicated subsidy regimes ever devised, or outputs, governments over the years have laid out a complicated mesh of regulations.

Indian agriculture suffers from several weaknesses but perhaps none more severe than overweening government intervention in the sector. Be it inputs such as fertiliser, which is governed by one of the most complicated subsidy regimes ever devised, or outputs, governments over the years have laid out a complicated mesh of regulations. There is enough evidence to show that excessive regulation has hurt not just agricultural productivity but also farmers and, eventually, consumers. Even the breakthrough economic liberalisation undertaken by the country in 1991 could barely loosen the government’s stranglehold on this sector. Last week saw yet another round of regulations — purportedly unleashed in the name of protecting the interests of the common man — that point to a further deepening of the licence raj.

On April 27, responding to an increase in the prices of pulses, the Maharashtra cabinet adopted a draft legislation aimed at regulating and capping them. Food and Civil Supplies Minister Girish Bapat even claimed Maharashtra was the country’s first state to adopt a price-control mechanism for pulses. On the same day, the Centre asked states to crack down on hoarding by imposing stockholding limits for traders on all varieties of pulses. A day later, the Centre issued a similar decision on sugar, empowering Central agencies and state governments to control prices by imposing stock limits, and regulating its supply, distribution, storage and trade. It is easy to characterise hoarding as an unjust activity that robs the farmer, increases prices for consumers, and benefits only the middlemen. As such, the crackdown on hoarding has instant appeal. But another perspective could be gained by thinking of the government’s buffer stock policy — essentially, the government is the biggest hoarder in the agricultural market. Indeed, timely hoarding of commodities, enabled by proper warehousing facilities in the country, can go a long way in stabilising price fluctuations.

Take the case of onions. Thanks to the fluctuations in the government’s arbitrarily set minimum export price for onions, there is, at present, a glut in the market. Prices have crashed to below Re 1 per kg and farmers are justifiably despondent. This is when hoarding, or creating a buffer stock, helps the farmer and smooths prices, both for consumers and producers. Instead of cracking down on hoarding and arbitrarily controlling prices, neither of which is a sustainable solution, the government should allow greater play of market forces in agriculture. Prices signal the direction in which farmers must move to remain profitable. Government band-aid is a poor alternative.

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