Not An Easy Act


The Centre’s decision to put onions and potatoes under the purview of the Essential Commodities Act lacks thought and will open a Pandora’s box of complications By Sanjay Singh Gurjar

Food inflation is not a new challenge which props up time and again to haunt successive governments in India. Inflation is also one of the major planks on which the BJP-led NDA came to power in the recently held elections. So when food inflation reached 9.5 per cent in May from 8.64 in April, further pushing the Wholesale Price Index (WPI) to a five-month high of 6.01 per cent, the new government’s first task was to bring down the spiralling food prices and to dispel the rising concern among the masses about inflation in general and food inflation in particular.

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The Cabinet Committee on Economic Affairs (CCEA), on July 2, approved the inclusion of onion and potato under the purview of stock holding limits under the Essential Commodities Act, 1955. The move is being hailed by a large section of consumers as they believe it will improve availability of these commodities at affordable prices and in turn will help in tackling the problem of price rise and inflation. To add to the factor quotient, the 11 per cent deficit in rainfall too compelled the government to control the prices of onion and potato and put them in the list of essential commodities. Needless to say that speculations in future markets and hoarding were also upmost in its mind when the CCEA took this decision. However, the decision to put onion and potato under essential commodities has not gone down well with the Agriculture Produce Market Committees (APMCs), farmers’ unions and a couple of state governmeessential commodities act.inddnts.

The Essential Commodities Act, 1955, is primarily enacted to control production, maintain supply and distribution of certain commodities and to tackle the issue of artificial shortages caused by hoarding or black marketing. The moot point is to ensure that prices of commodities in daily use do not escalate to a level that causes social and political unrest. Over the last few decades, as governments took a backseat, allowing the market to dictate terms, the number of essential commodities has been reduced from 70 in 1989 to seven as of now.

Onions and potatoes are regarded as the poor man’s food in the country, available in all seasons. However, from time to time and especially over the last two decades, the prices of these commodities escalate to an extent that even the upwardly mobile Indian middle class has to tighten its belt to combat shortages and price rise.

Prices of onions and potatoes are extremely significant and have disturbed the political apple cart time and again. The BJP-led state government of Delhi in 1998 was ousted by the people in the following elections after the price of onions hit the roof. Onions once again came to haunt the incumbent, this time the Congress-led UPA government in Delhi in the 2013 elections.

However, what is new this time is that the price of potatoes which generally remains moderate has also soared on the fear of production woes. Major potato growing regions are reporting a marked decrease in production.

Onions which are now busy drilling holes into the pockets of the consumers are grown widely in Maharashtra, Madhya Pradesh, Karnataka and Andhra Pradesh. Maharashtra, a leading producer of onions, accounts for more than 27 per cent of the country’s total production. Over the last production cycle, farmers there have faced hailstorms and late winter rainfall which have affected their production. Uttar Pradesh, West Bengal and Bihar dominate the potato production landscape in the country. Production this year has fallen due to longer winter than usual and untimely rainfall in the later part of the crop’s growing cycle.

But when the prices of fruits and vegetables spiked amidst the peak summer heat this year, that was not an unusual occurrence neither did it indicate a sharp shortage of supply. The new government, however, went into panic mode and the decision to put onions and potatoes under the purview of the Essential Commodities Act was taken without sparing much thought. However, prices are expected to come down after the monsoon is over when the new harvest reaches the wholesalers.

The state governments of West Bengal, Delhi, Chhattisgarh, Madhya Pradesh, Mizoram and Tripura had requested the Central government to go for the move. In order to control rising prices of onions and potatoes, the Centre has hiked the Minimum Export Price (MEP) of onions to $500 a tonne from $300. The MEP of potato was also increased to $450 a tonne. The move to put onions and potatoes in the list of essential commodities is not the first one. Since the onus of implementing the Essential Commodities Act lies on the states, the state governments are required to check the stock limits and enforce other provisions of the Act.

page16-sep-oct-imgThe leaders in production of onions and potatoes, Maharashtra and Uttar Pradesh respectively have not taken the Centre’s decision in a positive light. Even NDA allies there are not happy with the Centre’s decision. Raju Shetty of the Swabhimani Shetkari Sanghatana, an NDA ally, says, “Including commodities like onions and potatoes under the Essential Commodities Act is ridiculous. While the government is increasing the prices of fuel and transport, at the same time it is reducing the prices of agricultural commodities. Why is it that farmers always have to sacrifice their interests to fight inflation? Why can’t they use it as an opportunity to make some money,” he questions. Reports suggested that the Maharashtra government was not going to impose stock limits and the Uttar Pradesh government would not be enforcing the Act at all.

Nashik, Pune and Ahmednagar are the major hubs of onion production in Maharashtra. The farmers and the 90-odd APMCs there are also not in favour of the move. The provision to put onions under the Essential Commodities Act is being seen as an existential threat to these APMCs. They have threatened to go on strike if onion does not get removed from the list.

As on date, Maharashtra does not have an alternative system of procuring potatoes and onions. As long as a new system does not materialise, the commodities will be procured through the APMCs.

The decision has also not gone down well with the farming community. They do have a sound argument. They say that when their crop is going cheap, nobody bothers to compensate the losses they have incurred while cultivating the crop. Rather, the government becomes active when the crop is fetching money once in several years, they add. Price rise is often controlled by importing onions which effectively brings prices down and the short-term profit they maessential commodities act.inddke is offset.

The government’s hike of the MEPs of onions and potatoes will further limit the market options for Indian farmers. The export prices have been hiked to such levels that the farmers may find virtually no takers. It has to be noted in this context that both onion and potato are cash crops which farmers grow and store to fetch better price for their produce. Incidentally, the government funds the construction of cold storage facilities through the National Horticulture Board (NHB) to promote the storage of these perishable crops. So, now putting them in the Essential Commodities list in a way contradicts its own intention and purpose.

“This decision does not mean anything. The Centre should pay heed to the farmers’ concerns before taking such a drastic decision. A minimum support price (MSP) for potato also needs to be fixed,” says Mahendra Swarup, president, Federation of Cold Storage Association of India. If ECA is enforced, storing produce will automatically be treated as hoarding and will become illegal.

Governments have their own way to determine policy issues and putting onion and potato in the ECA category is one such move. “The Central Potato Research Institute (CPRI) isn’t producing high yield seeds. If they are really worried about increasing production, why don’t they allow import of seeds,” asks Swarup.

Possibly instead of increasing the MEP first, it would have been more prudent to fix MSPs on onions and potatoes and then include them in ECA. The Indian farm sector, already facing many challenges, would have been least affected. In a country where farmers commit suicide due to the vagaries of nature as well as lack of proper finance facilities, an ill-conceived adhoc move will only exacerbate the problem. Developing a mechanism to prevent hoarding and creating adequate platforms for more buyer-producer interaction would have helped the cause better. Farming is a profession of hope and that’s more so true for Indian farmers. Farmers hope for better prices, better monsoon, better government policies and a bigger share of the growth pie till the formal notification to induct onion and potato under ECA gets issued.

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