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October 25, 2013

Off Topic: The License-Permit-IT Raid Raj Is Alive & Kicking Onion Eaters

The Hue and Cry over onion prices hitting Rs.100 pr kg, made me revisit this Economic Times feature (written on Oct 1, when the prices were Rs.80 per kg) which had some revealing details on why the License-Permit-IT Raid Raj is alive and well. Extracts (emphasis mine):
As it is, the number of traders in onion mandis is not increasing. In important onion markets, it adds, most commission agents and traders have been there for 10-15 and only one or two new licences have been issued. "Such long presence with each other in the market has helped them to develop mutual understanding and gives undue advantage to these established trading firms in the onion trade," says the report. It's anomalous that though most of the produce enters the onion mandis between October and February, this is when prices are highest. This suggests, says the report, that "other exogenous factors like hoarding, market cartels, etc are influencing onion prices." According to Himanshu, since demand for onions rises as the festive season begins, traders usually start releasing only in November and December. "If traders start hoarding that harvest as well, prices will peak right into January," he says. "That is what happened in 2010-2011." That year, it took action from the then-finance minister Pranab Mukherjee to cool down prices. Two days after a raid on some of the biggest onion traders in Maharashtra by the income tax department, prices fell 60%. ...The Agricultural Produce Marketing Committee Act—a state-level law that dictates where a farmer can sell and who can buy — is promoting cartelisation. Elsewhere, the government has failed to calibrate exports—a Rs 2,141 crore business in 2011-12—to domestic conditions. In 2010, for instance, unseasonal rains in late-September and October 2010 destroyed the onion crop. Yet, India exported 133,000 tonnes of onion that October....The government's fear is that if the country abruptly stops exports, it will not be seen as a reliable supplier in international markets.
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