One must appreciate the urgency and seriousness with which this government is seeking to deal with food inflation in the context of a weak monsoon so far. But unfortunately, the tools that it is deploying are of pre-reform vintage and could ultimately boomerang on both producers and consumers. Take the decision to impose minimum export prices of $450 and $500 a tonne on potatoes and onions and, now, to bring both staple vegetables under the Essential Commodities Act (ECA), which empowers states to impose stockholding limits. In theory, these are great anti-inflationary measures. The first, by discouraging exports, would help augment domestic supplies. The second will enable states to crack down on those ‘hoarding’ the two commodities with a view to profiting from any production shortfalls on account of poor rains.

In practice though, the moves are deeply flawed and even counterproductive. Last year, India produced an estimated 19.3 million tonnes (mt) of onions, of which hardly 1.5 mt was exported. Potato shipments were even less significant: some 0.2 mt out of a total output of 46.4 mt. Clamping down on exports is, therefore, unlikely to substantially enhance domestic availability. They would, however, hurt producers and the trade. Overseas markets aren’t built overnight; an on-off policy on exports is not conducive for traders to plan shipments or enter into long-term contracts with buyers. Besides, they reinforce India’s image as not being a reliable supplier — for a country whose agri-exports topped $45 billion in 2013-14, this isn’t a good thing. The same goes for antiquated policy instruments such as the ECA, which views virtually all traders as hoarders and black-marketers. This may be true in old Bollywood films but the reality is that it is impossible to ‘hoard’ potatoes and onions beyond 5 or 6 months. Traders or big farmers may keep potatoes harvested in February-March in cold storages. But these are for sales through the summer and monsoon, which necessarily have to make way for the subsequent kharif crop arrivals from October-November. There is a natural ‘de-hoarding’ process operating here. It remains to be seen whether a cold storage owner holding, say, 5,000 tonnes of potatoes will now be deemed a ‘hoarder’.

Export restrictions and invoking the ECA, by deterring traders from making proactive purchase decisions, will only result in disincentivising farmers from increasing production. This, in turn, is not in consumer interest. The big lesson we have from food inflation in recent times is that it is not amenable to monetarist or demand-side solutions. The only sustainable solution lies in boosting supply response through investments in crop yield improvements and post-harvest storage, transport and marketing infrastructure. True, potato and onion prices are retailing ₹5-6 a kg higher compared to last year. But the current levels of ₹28 to 30 are still not so high as to prompt a return to the pre-liberalisation era of controls.

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