Onion prices bring tears to India's
eyes By Siddharth Srivastava
NEW DELHI - One would believe that
multibillion-dollar acquisitions (Tata-Corus,
Vodafone-Hutch Essar, Hidalco-Novelis) and a high
growth rate due to a booming economy would be
enough to make any government happy.
New
Delhi, however, is worried - and it has to do with
the price of onions - at Rs20 (45 US cents) per
kilogram compared with the usual Rs5. Onions are
an essential staple for the poor, who still form
the biggest segment of Indian society and wield
enormous political power.
Although the
Indian economy has enjoyed sustained 8% annual
economic growth, more than 200
million in the country have to live on less than
$1 a day. To them, it is a question of struggling
to put enough food in their stomachs every day.
The price stability of wheat, edible oil, pulses,
sugar, milk, vegetables and fruit matters the most
to people, not growth.
Excess demand - due
to a growing middle class earning high incomes in
jobs in the rapidly growing services sector -
combined with supply-side constraints caused by
stagnant agricultural growth and infrastructure
bottlenecks - such as transport, roads and storage
- have resulted in inflation climbing to a new
two-year high. Vegetable prices, especially of
onions, are surging across the country.
Rising food prices have pushed annual
wholesale-price inflation to more than 6.5%, much
above the mark stipulated by the central Reserve
Bank of India (RBI).
Consumer prices are
rising at 7-8% a year, which many believe still
understates the severity of the situation.
In the past, rising onion prices have made
incumbent governments cry, literally. In 1998, the
ruling Bharatiya Janata Party (BJP) lost state
elections in Delhi because of onions (though the
price at that time rose to Rs60 per kilogram), and
in 1980 rising onion prices contributed to the
downfall of the left-of-center Janata Party
federal government.
Sensing a political
opportunity, the opposition BJP has been holding
public demonstrations. This will be especially
effective when state elections are held in the
northern states of Uttaranchal and Punjab this
month and crucially in the very important state of
Uttar Pradesh in April and Gujarat later.
These elections are widely seen as a
mini-referendum for the Congress-led government
before federal elections in 2009.
Fearing
an electoral backlash, the Congress-led coalition
government has cut import duties on items ranging
from cement to palm and sunflower oils and is
looking to cut the prices of gasoline and diesel.
The RBI, which wants to rein in inflation
to about 5% by March 31, has announced an increase
in the bank cash reserve ratio that lowers lending
ability. Other measures include short-term lending
rates being raised to check liquidity.
Prime Minister Manmohan Singh and his
economic advisers have recognized that India's
robust economic expansion was starting to
overheat, an issue they called a "key short-term
priority".
Finance Minister P Chidambaram
said the rise in the inflation rate is due to
strong growth and robust consumer demand. Last
week, the minister said: "Gross domestic product
[GDP] is rising at more than 9%. Year-on-year
credit growth is a little over 30% and money
supply is close to 21%. This is an unusual
combination of factors. The government is
determined to take all steps to moderate
inflation. We have done it before and we are
confident of doing it again.''
However,
experts have said the government's efforts are
only piecemeal and do not address the deeper
structural issues.
Rising food prices have
once again brought into focus an infrequently
talked-about aspect of the Indian economy -
agriculture, on which depend the livelihoods of
600 million Indians (out of a population of more
than a billion), on 250 million hectares of
farmland, an average of less than half a hectare
per person.
Despite the overwhelming
dependence of the population on the sector,
agriculture contributes less than 25% of GDP. Food
production and agriculture have stagnated, growing
about 2-2.5 % compared with more than 8% for
industry and more than 9% for services.
Ironically, at the same time other sectors
are recording high attrition rates due to
job-hopping and an acute shortage of manpower,
pointing to the government's failure to transfer
human resources from agriculture to the booming
services sector, which accounts for more than 50%
of India's GDP.
Last year, wheat stocks
almost dwindled to zero, prompting the government
to import 3.5 million tons, which was India's
single largest wheat import program in several
decades. Onion production this year has been poor.
Improving irrigation facilities and
reducing dependence on monsoons are critical
factors, but experts agree that the only long-term
solution is to shift the workforce from
agriculture to the industrial and service sectors.
Economists in India cite the fact that in
China some people have seen their incomes
dramatically rise after being shifted from
agriculture into industry and services.
One proposed solution is switching from
cereals to high-value crops - such as fruit,
medicinal herbs, bio-diesel crops, flowers and
vegetables - that need less irrigation, earn more
income, can be exported and cause less
environmental damage.
The import of food
can be balanced by the export of high-value
commodities, a model followed successfully by
countries such as Chile, Israel and Italy, which
export farm products (fruit, wine, olives,
specialty seeds) and buy food from the
international market.
These problems could
be addressed were it not for a bigger,
self-defeating, vicious political cycle. Change is
needed to break the grip of years of
underemployment in agriculture. Those who are the
worst off are the most insecure and thus are
resisting this shift by opposing economic-reform
measures.
The political class in this
country has not been able to sell economic reforms
as a process that creates jobs and favors the
poor. Change has become associated with glitzy
shopping malls, highrises and policies that favor
the rich.
New Delhi, because of constant
prodding by the all-powerful president of the
ruling Congress party, Sonia Gandhi - including a
recent letter to the prime minister expressing
concerns about opening retail to foreign players
that was conveniently leaked to the media - has
already begun to dilly-dally on critical reforms.
The setting up of special economic zones
has also been put on hold. There is confusion
about retail, with various branches of the
government expressing different views.
For
now, though, it is all about not crying over
onions, politically.
Siddharth
Srivastava is a New Delhi-based
journalist.
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