A political alarm rings as onion prices rise

The rise in onion prices all over the country in the last few weeks, particularly after mid-October, has cast a shadow on the festival season mood and sent out a political alarm to governments. The prices of several other essential items, including vegetables and fruits, have increased, but onion prices have risen the most. The prices have more than doubled in most parts of the country, touching Rs 100 per kg in some areas. The onion price rise has been raised as an election issue in the five states which are going to the polls this month. Parties have in the past lost elections on the issue of onion prices. Onions are among the most essential vegetables and their price movements are very sensitive. So there is great care and caution on the part of governments in tackling fluctuations in the price of onions. 

The central government has amended the export policy and imposed a minimum export price for onions till December 31 in order to maintain domestic availability. It has begun a market intervention to supply onions at Rs 25 per kg, raising questions about violation of the model code of conduct as five states go to the polls starting Tuesday. It has set up a price stabilisation fund and increased the buffer stocks. But domestic consumption has been increasing at a pace greater than the release of buffer stocks in the market. Paradoxically, the prices have risen though the country is producing double the quantum of domestic demand. Production increased in 2022-23 to 318 lakh metric tonnes (MT) from 316 lakh MT in 2021-22. Maharashtra and Madhya Pradesh are the largest producers, with Karnataka and Gujarat ranking behind them. Unseasonal rains and hailstorms have damaged some standing crops. This along with late sowing has created apprehensions of a fall in production and supply disruptions. 

The price volatility is a sign of the inadequacy of the price stabilisation mechanism. The government has said that the problem is not just one of demand and supply but of price manipulation in the market. It has said that some traders are indulging in speculation by spreading news of shortage. This may be partly true but only some traders cannot send the prices soaring all over the country through speculation. The government has said that it has intervened in both wholesale and retail markets and is selling onions at around a thousand points in 100 cities across the country at Rs 25 per kg. The question is whether the government will have enough buffer stocks to effectively intervene in the market and check the prices. Elevated onion prices have also raised the risk of fuelling food inflation further.