The politics of onion price rise

It shows the trade-off between inflation and farm incomes

With onion prices rising sharply in the past few weeks, one of the most basic contradictions in Indian political economy is manifesting itself once again. Urban consumers are unhappy to pay more for onions, which have become scarce and expensive, thanks to late sowing and rains disrupting supply chains. Political parties and governments have rushed in to both, exploit and assuage this anger. Exports have been banned, and the government is planning to offload its stocks. Such steps will bring down prices to some extent. What about farmers, though? This was their opportunity to make some windfall gains. Do remember that tepid food prices have been the biggest reason for low inflation in the last few years. Food buyers have gained at the cost of food sellers. And this has put a severe squeeze on farm incomes. Even if left unattended, the onion price rally would have reversed in some time. After all, this is not the first time onion prices have risen. It is difficult to take sides in this debate. A large number of Indians spend almost half of their incomes on buying food items. Most of them work in the informal sector and have no price indexation for their wages. This means that many Indians are hurt badly by high food inflation. Farmers, on the other hand, are almost perpetually distressed in this country. Although often seen as unskilled and unwanted in the larger economy, they perform the crucial function of ensuring food security for the nation. It is their collective effort, despite worsening viability of farming, which has kept India immune from price volatility in international markets for most food items. There are ways to resolve the contradiction. If farmers are denied a windfall gain by the government to keep inflation under check, then there should also be a provision to ensure that there are no windfall losses at the time of a glut. Bumper harvests are more unfair to vegetable farmers because middlemen squeeze price paid to farmers, without passing on the entire gains to consumers. What’s essential, however, is that the politics of it is discussed first. Any political party which doesn’t want to champion the idea that high food inflation is as bad as a crash in food prices is being disingenuous while making claims that it is pro-farmer.