A price to pay

Print edition : November 21, 1998

As one essential commodity after another is sucked into the vortex of an inflationary spiral, a consistent pattern of miscued interventions by the BJP-led Government has compounded the problems.

IN an earlier electoral context, onions served as a metaphor for political and administrative ineptitude. Today, the humble edible bulb seems to be exerting a form of fatal attraction in the market, sucking some essential commodity or the other into the vortex of an inflationary spiral. In the first week of November, rumours swept large parts of the northern States about a crunch in the market for salt, and panic-stricken consumers queued up at local grocery shops, in some places buying the commodity at Rs.60 a kg.

Delhi's new Chief Minister Sushma Swaraj moved quickly to stem the panic over salt, undertaking a number of highly publicised visits to warehouses in the national capital. A series of advertisements in the media warned against rumours and assured the consumer that sharp trade practices would be stamped out.

A semblance of order was restored with regard to salt, but by then inflation had advanced over a broad spectrum of commodities. The post-south-west monsoon months, which would in normal circumstances have come close to being a season of plenty for the consumer, have been nothing less than traumatic this year. Starting with a crisis on the edible oils front in September, the focus shifted to onions and then the vegetable market in general. Public anxieties today, largely unrelieved as far as vegetables are concerned, are beginning to run high over pulses. Another looming threat as the kharif season progresses is that of a rice harvest below target and massive accretions to private hoards.

Current estimates for total kharif foodgrain output run at 101.03 million tonnes, which is down by 3.4 million tonnes from the peak touched two years back. Most of this shortfall is expected to be on account of rice.

There has been a consistent pattern of miscued interventions by the Government in recent months. After a poor onion harvest last December, a similar situation had prevailed in March this year. But the Bharatiya Janata Party-led Government, which assumed office in March, did not follow the example of its predecessor Government led by the United Front coalition in decreeing a prompt ban on onion exports. That measure of caution taken by the U.F. Government immediately after the December harvest kept prices within reasonable limits in the months leading to the March general elections.

In the months following March, the BJP-led Government did nothing to temper the forces of speculation in the onion market. In fact, it acted to the contrary. To add to the crop shortfall of 15 per cent, exports of no less than 250,000 tonnes, or about 8 per cent of the depleted harvest for the year, left the shores of the country after March.

Analysts at the Department of Consumer Affairs in the Central Government had warned as far back as June of a tight supply situation and advocated a ban on exports. This recommendation was overruled by the Government. Finally, when the export ban was decreed on October 8, the retail price of onions was over Rs.40 a kg in several centres in the North. It later scaled an all-time high of Rs.60, a 900 per cent price increase following from a 15 per cent crop shortfall.

Having exported its way into the inflationary trap, the Government then began a frantic effort to import its way out of it. This is in conformity with the new market orthodoxy, which deprecates official interventions in the distribution of commodities, except to maintain an environment of open markets which provides for their free movement. The effort came a cropper. As Union Minister for Food Surjit Singh Barnala ruefully admitted, the Government soon found that world markets do not have the levels of onion availability for India to meet its requirements.

Union Minister of State for Agriculture Som Pal seemed unaware of this aspect when he spoke of continuing imports of onions until early next year. The December crop this year would be poor, and salvation would come no earlier than April next year, when the rabi harvest of onions would begin entering the market, said Som Pal.

Evidently, thinking within the Government remains confused on the best strategy to deal with the current inflationary crisis. Union Cabinet Secretary Prabhat Kumar, who chaired a meeting of State Chief Secretaries on November 7, admitted that since it was placed on Open General Licence (OGL), onion imports did not total more than 500 tonnes. This was far below the quantum required to meet the current shortfall.

The conference of Chief Secretaries resolved to extend the ban on onion exports until January, and to put in place a mechanism to monitor continually the prices of essential commodities across the country.

The Cabinet Secretary also announced that the States had been advised to enforce strictly the Essential Commodities Act to check all possible sharp trading. This begged the question why the BJP-led Government had amended the Act through an ordinance in April, later allowing it to lapse. The proposed amendment is now before a Joint Select Committee of Parliament, though the signals it sent out to the trading lobby have been manifest in the current inflationary fever. West Bengal Chief Minister Jyoti Basu wrote a forceful letter to the Prime Minister demanding the restoration of procedural and punitive powers that the ordinance had diluted.

The wholesale price index for the week ending October 24 indicated an annual inflation rate of no more than 8.2 per cent, and that too after remaining below that mark for many weeks. The catch is that the consumer price index, which is a measure of the actual prices borne by the people, indicates an inflation rate in excess of 15 per cent, which is the highest level in five years. Nothing can clearly be said at this point about the distribution of the gains of the current inflation across the hierarchy of the trading process - from the farm to the purchasing agent and then to the wholesaler, semi-wholesaler and retailer.

There is a very real danger that if measures to augment supply fail, the Government may be forced to adopt some measures to curtail demand. This could come in the form of reduced spending in the Budget to be presented in March. In a context of reduced economic activity and a looming recession, the consequences would be little short of disastrous. The inflationary spiral would then be rendered additionally lethal in that livelihood opportunities for the masses would shrink under a recession, while the costs of essential items would spiral out of reach on account of speculation.

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