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Onion export and wheat stocking restrictions: Open up the field
The Narendra Modi government recently lifted the export ban on broken rice, which had been in place since September 2022. However, it is equally necessary to remove the 20% export duty on onions and stockholding limits on wheat. With the ongoing rabi harvest, farmers have sown 324.9 lakh hectares (lh) under wheat and 10.3 lh under onions, marking an increase from last year’s figures of 318.3 lh and 8.6 lh, respectively. Reports suggest bumper production, as seen in Maharashtra’s Lasalgaon market, where wholesale onion prices have dropped below ₹1,500 per quintal from ₹2,300 earlier this month. Similarly, the agriculture ministry has estimated a record wheat output of 115.4 million tonnes (mt), although its accuracy will be tested in the coming days, particularly with the risk of temperature fluctuations affecting yields.
Improved Supply and Inflation Control
The overall supply situation in food commodities has improved significantly. Wheat stocks in government warehouses stood at 13.4 mt on March 1, compared to 9.7 mt a year ago. Mustard prices in Rajasthan mandis are below the government’s minimum support price, indicating ample availability. Additionally, annual consumer food price inflation has dropped to 3.75% in February from 10.87% in October. Unlike last year, March has not witnessed heatwave conditions that previously triggered a price surge. Favorable climatic conditions, including mild La Niña, have contributed to a stable winter, supporting a likely bumper rabi harvest. This development is also beneficial for the Reserve Bank of India, as it reduces inflationary concerns and allows greater flexibility in monetary policy, including interest rate cuts.
Preventing Market Distortions and the Cobweb Cycle
Given this improved scenario, the government must proactively eliminate export and stocking restrictions to prevent market distortions. India should avoid the cobweb cycle, where farmers overproduce in response to high prices, leading to price crashes, followed by underproduction and subsequent price surges. The most effective solution is to maintain an open export-import policy while allowing free movement and stocking of produce within the country. Onion growers, in particular, face restrictions whenever domestic prices rise, yet these curbs are not lifted with the same urgency when prices fall.
A Call for Market-Oriented Agriculture
A market-oriented approach is crucial for Indian agriculture, ensuring stability and profitability for farmers. By removing unnecessary restrictions, the government can create an environment where agricultural trade is driven by market dynamics rather than reactionary policies. There is no better time to implement these reforms than when the worst of a supply crisis has passed.
Disclaimer:
This analysis is based on the editorial content published in Indian Express and is intended solely for informational and educational purposes. The views, opinions, and interpretations expressed herein are those of the author of original article. Readers are encouraged to refer to the original article for complete context and to exercise their own judgment while interpreting the analysis. The analysis does not constitute professional advice or endorsement of any political, economic, or social perspective.
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