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Politics and rumours of rice and salt shortage combine to fuel panic buying, price rise

Amberish K Diwanji in New Delhi

Blame it all on politics! This seems to be the view emerging as prices in the commodities markets continue to soar. With elections in Delhi, Madhya Pradesh, Rajasthan and Mizoram a couple of weeks away, the price rise is expected to play a pivotal role.

"How much can you blame the traders alone?" asked a leading businessman involved in agriculture and food trade, who did not wish to be named. "Just ask yourself, how many onions can be stored, and for how long?"

He said that those who blame traders for the entire mess are fools out to pass the buck. "Natural factors and governmental inaction are to blame," he insisted.

Backing his view are agriculture economists, who too feel that blaming the traders alone is not fair. "There has been a shortfall in production by about ten per cent or so from the normal four to 4.5 million tonnes produced over the past four to five years," said Anil Sharma of the National Council for Applied Economic Research. "And then, we exported another 10 per cent or so. All this only worsened the crisis, causing some hoarding and forcing prices up."

The businessman pointed out that stored onion can be smelt a long distance, alerting the people, and that it would rot within a few days unless the storage rooms were air conditioned. "Moreover, stored onions start going bad at the points of contact, hence no one will store for more than a few days."

Dr J P Singh of the Agriculture Economic Research Centre, Delhi University, pointed out that the shortage in onions and potatoes have affected the prices of other vegetables. "Because of these shortages, farmers have been substituting other vegetables, making their prices shoot up also." So while in Delhi, onions sell for around Rs 40 on a good day, even cauliflower costs Rs 35.

The businessman gave another reason. He said last year there was a bumper crop of potatoes, forcing the prices down and thus harming the farmer. Therefore, this year, he said the farmer planted fewer potatoes, and this coupled with other factors have forced the prices up. "This is a very natural law of the markets," he added.

The government has come in for criticism from other quarters also. Right through the last year, meteorologists have been warning of the effect of El Nino or the EL Nina. India had an intense heat wave, affecting many crops, followed by heavy floods and unseasonal rains. India too was affected with heavy rains in late October all over the country.

"The Union government has shown little courage in tackling the crisis or in even highlighting the facts of the situation," said the businessman.

This, in turn, has let rumours run wild. For instance, now fears are being voiced about an impending shortage of rice after the Punjab government complained of damaged paddy.

Sharma points out that in spite of rumours, there has been no shortfall in the production of rice paddy. "What has happened is that some rice has been damaged by way of extra moisture content. The Food Corporation of India godowns are overflowing with paddy, which is why FCI is not procuring rice anymore," he said.

Added the businessman, "To avoid a situation like that of onions, the government must be willing to import rice as and when the need arises. Delaying it can cause the prices to rise."

Many blame the present onion price crisis on the government's unwillingess to take decisive action: first to stop exports, and then to import the onions. "The government put onions on the open general list as late as October, when it should have done it in June, or at least July," said Sharma.

Then there is the simple fact that the people have stopped trusting the government. And this is not just in Delhi, by far the worst affected by the shortages and spiralling prices, but in other regions. Yesterday, there was panic in Delhi after a rumour spread that the salt was in short supply and its price would rise sharply. Panicky customers began picking up every gram of salt, and this allowed the traders and shopkeepers to hike the price anyway.

Said Sharma: "It is just psychological. Right now there is so much mistrust, people are just getting carried away. Every time the price of a particular commodity goes up, there is panic buying which actually fuels the price rise."

"People feel that the government is ineffective," said Singh. "I think it all started with the dropsy case; some people died after consuming adulterated mustard oil, but no one has been punished till date. This has emboldened the traders to circumvent the law and made the average person lose confidence. And it fuelled the perception that the BJP was soft on traders, its main electoral constituency. So when someone starts a rumour now, it spreads like wildfire."

But Singh added that the this lack of faith cut across party lines, "Even in Patna, people panicked. And prices have been going up in most parts of the country."

So is there hope for the harried housewife, struggling to cope with the price rise even as incomes stay fixed? Singh is confident that prices will stabilise after the elections. "Now, it is just a case of politics and it might even suit some parties to let the prices stay high," he said.

Singh pointed out that imports are rising which will help bring prices down. "The West Bengal government, for instance, has promised to import 2,000 tonnes of onions and sell them at Rs 20 to 22. This will force the other state governments to match the same level, thus checking the price," he said.

The businessman feels that in the long run, the only way out is to liberalise trading in such commodities. "When there is a shortage, let us import; when there is excess, let us export. That alone will ensure stable prices," he said. He pointed out that China, which had more mouths to feed than India and has lower agricultural production, maintains a more stable price because of its willingness to import and export as per the requirement.

India also lacks infrastructure in the rural areas, resulting in huge losses every year. "The lack of proper roads to the markets, or storage facilities means that 20 to 25 per cent of our crops are damaged and lost annually," said Sharma.

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