Onions, a common ingredient in most Indian dishes, are turning out to be a bit of an economic and political hot potato. The vegetable that we take for granted has been emblematic of India’s larger food inflation battle for quite a while now. Indeed, on occasion, it has actually shaped electoral outcomes.
In the 1980s, Indira Gandhi used high onion prices to her advantage to vanquish the Janata Party government. In 1998, a dramatic rise in onion prices led to the defeat of the BJP government in Delhi. Another political backlash looks unavoidable now: elections are due in Delhi (and in four other states), where onions are being sold for Rs. 100 a kg, making it costlier than petrol.
Wild swings in onion prices are now common. The government usually responds with copybook measures: curbing exports or importing onions to improve supplies. These eventually work, but not before upsetting household food budgets. The crackdown on prices is never prompt.
Bureaucrats don’t act until they are convinced a price spiral will hold out. When a case for imports is made out, crucial time is lost to a long, formal import-contracting process. When domestic prices are on fire, you can’t go haggling in the international market.
Vegetables tend to become expensive during the June-September rainy months. A good monsoon, like the one this year, can ironically interrupt harvests. Rains can hold up trucks on the highways. Conversely, a drought can destroy crops. The real culprit could be India’s commission-based onion trade, which is full of malpractices and oligopolistic traits.
Traders can easily raise prices at the slightest hint of a drop in output. Studies have showed evidence of collusion in Lasalgaon, Asia’s largest onion market near Nashik that sets countrywide price benchmarks. A 2010 probe by the Competition Commission of India revealed that one firm alone accounted for nearly one-fifth of the total trade.
Here’s our prescription: improve India’s low onion yields, 14.2 tonne a hectare against China’s 22; employ market analysts to forewarn us about shortages, dismantle hidden onion cartels and simplify import rules. And for now, track hoarding.