Cover Story 2: The Great Onion Disaster

INTERVIEW: SOM PAL
"Large-scale imports would have affected the morale of the farmers"

Minister of state for Agriculture Som Pal spoke to Special Correspondent Shefali Rekhi on the crisis:

Why are onion prices shooting up?
It's because of the weather conditions. The heat and unseasonal rains have severely affected production.

When did you foresee a crisis and what action did you take?
In August. By late August we had told NAFED to stop exports.

When did you recommend imports?
By third week of September.

Some say you delayed imports to benefit farmers.
I was in favour of immediate imports of a limited quantity. Large-scale imports would have affected the morale of the farmers.

What next?
Prices are coming down. As imports and free supplies reach the markets, they will come down drastically in the next few weeks.

What about a long-term solution?
We are trying to increase the area under cultivation and the storage capacity. We will also give farmers better seeds.

He may well be joking but if Singh's magic realism is resounding through Rajasthan's villages, it is due to a belief that the onion crisis is purely man-made and a result of Government ineptitude. The theory needn't be dismissed out of hand. Some 10 months ago, in the last days of the I.K. Gujral government, onion prices skyrocketed after a bad harvest and forced the then agriculture minister Chaturanan Mishra to impose a ban on the commodity's export. The curb worked and prices plummeted in February and March. But the extreme volatility also had an unintended consequence. Farmers switched to other lucrative crops and then reverted to onions again, making yield assessments hazardous. This year the area under cultivation rose in expectation of high prices, but the gap between supply and demand was expected to remain.

Arguably, the onion deficit may have been managed had nature not intervened. This year's excruciatingly hot summer took a toll on the onion crop, particularly in Maharashtra. According to the Agriculture Ministry, nearly 20 per cent of the rabi crop (harvested in May-June) was affected, involving a production loss of nearly 4 lakh tonnes. The commodity traders quickly detected a killing and the price of onions rose in Delhi from Rs 13 a kg in mid-June to Rs 22 in late-July. Moreover, since the rabi crop is not consumed immediately but gradually released into the market till the kharif harvest arrives in October, it was entirely predictable that there would be an onion shortage leading to a sharp escalation in prices in September and October. On August 23, for example, Horticulture Commissioner H.P. Singh admitted that there would be a 9 lakh tonne shortage of onions this year. Yet, a report by the Agriculture Ministry received by the Prime Minister's Office on September 4 stated that "it is anticipated that the availability and prices of onions may return to normal levels by the end of September 1998".

That's when the Gods decided that onions wouldn't symbolise eternity for the Vajpayee Government. The unseasonal rains in September and October led to all calculations going awry. The wet weather delayed harvesting and this meant that the onions which should have arrived in the mandis in end-September and early-October were delayed by more than a fortnight. Market-savvy traders realised this well before the babus in Krishi Bhavan and held back the release of their already depleted rabi stocks. Delhi was by far the worst affected. Picking up gossip from the wholesale markets, the Department of Consumer Affairs reported the existence of "a powerful cartel of traders who do not allow large-scale free trading of onions. They have large storage capacity and regulate arrivals in the market so that the prices do not decline".

Appealing as this conspiracy theory is, it begs a few facts. First, there are no mega storage centres of onion in Delhi. In fact, storage facilities for onions are abysmal with some 20 per cent of the crop rotting in transit. The nearest storage point to Delhi is Amritsar which services the export trade with Pakistan but whose capacities don't come anywhere near the capital's daily requirement of some 400 tonnes each day. Second, the Delhi market is not an export centre; it caters almost exclusively to the metropolis. Most commodity traders in Delhi are commission agents who benefit from volume and arbitrage. Says Mahadev Das Lakhwani, a leading onion trader of the capital: "The price hike didn't favour me. We are commission agents -- the more we sell the more will be the commission. It's better to sell more on a lower price than less on a higher price." Lakhwani's insistence that the price hike is caused by a real shortage is echoed in other places. According to N.D. Vasu of the Bangalore-based B.N.S. Murthy and Chettiar Company, "The rates have been so steep only this current session. If there is a good crop in Nashik, prices will come down in the next two months."

By invoking the hoary socialist rhetoric against "hoarders" and "blackmarketers", officialdom has reacted predictably and sought to divert attention from its own laxity, a series of policy failures and political sloth. The shortfall in domestic onion production wasn't of such a magnitude as to cause consumer hardship on this scale and leave a fragile coalition totally vulnerable. Yet, the crisis was allowed to assume unmanageable proportions.

The story of the great onion disaster begins with bureaucratic laxity. The fact that there was going to be a shortage of onions was well known by early summer when reports of an indifferent harvest first started trickling in. Yet, officials pretended the problem didn't exist and pinned their hopes on a bumper kharif crop that would take care of all problems. Indeed, the fiction of a bumper harvest was maintained till the end of September. So complacent were officials in Krishi Bhavan that Minister of State for Agriculture Som Pal admits that he got the first whiff of an impending problem in mid-August. The admission doesn't exonerate the minister but does indicate the extent to which the bureaucracy managed to fudge reality and run rings round an inexperienced BJP team.

Part of officialdom's laxity can be traced to overlapping roles. The Atal Bihari Vajpayee Government inherited the Congress' numerous white elephants which were blessed with monopoly powers. In the case of onions, it was NAFED -- a cooperative also operating as a sort of specialised State Trading Corporation -- that enjoyed an exclusive right to export onions and garlic. The canalising agent for foreign trade in these commodities, NAFED is headed by Congressman Ajeet Kumar Singh. The son of Tapeshwar Singh, a former Congress MP from Bihar who was also NAFED chairman during the Emergency, he acquired control of the body earlier this year, defeating the BJP's nominee Dilip Singh Bhuria.

It would not be an exaggeration to say that NAFED has acquired all the characteristics of a private monopoly running under state patronage. As the agent for the export of Indian onions, mainly to the Gulf and South-east Asia, NAFED's preoccupation was with earning the 3.5 per cent assured commission. Consequently, its concerns were market-driven and not grounded in social obligations. It proceeded merrily with onion exports during the crisis in December-January and stopped only after a formal ban by the Gujral government on January 12. The ban was lifted on March 3, a mere 16 days before the Vajpayee Government assumed office. Between April and August this year, NAFED exported nearly 2 lakh tonnes of onions and directly contributed to the growing shortage of onions. Ajeet, however, denies any responsibility. "We have done what is in the interest of the farmers and the general masses of the country. If we stop exports, the farmers will starve."

In a sense the NAFED chairman is right in not owning up to the entire responsibility. The political leadership woke up to the onion crisis as late as September 10 when, under pressure from the party, the PMO convened a meeting of the concerned ministries. The meeting decided to supply onions at a subsidised rate to Delhi and take steps to import a total of 13,000 tonnes of onions, 3,000 tonnes of which were earmarked for Delhi. In their naivet , the BJP imagined the crisis was resolved. Delhi's Civil Supply Minister Purnima Sethi rushed to the press saying shiploads of onion were on their way. If Sethi hoped she could talk down prices and force traders to release hoarded stocks, she was mistaken.

It was now the turn of the bureaucracy to get into the act. It took 15 days for Ministry of Food and Consumer Affairs under Surjit Singh Barnala to prepare a five-page note that quantified the subsidy on imported onions at Rs 13 crore for a month. By then Vajpayee had embarked on his UN visit and files shuttled aimlessly between four ministries. According to BJP sources, even at this stage Som Pal was loath to allow imports, saying that the price rise would benefit farmers. It was a spurious argument since the onion trade between July and September is exclusively a traders' game.

That didn't cut much ice with a party looking to Delhi's urban electorate, but the whole exercise took time. Movement on the onion front resumed on October 8 when a committee of secretaries banned exports. It also cleared imports and pushed for the waiver of the 15 per cent import duty by the Finance Ministry in consultation with the Commerce Ministry. On October 14, at the instigation of newly- appointed Delhi Chief Minister Sushma Swaraj, the Cabinet formally ended NAFED's monopoly status and put onions on the OGL list. The gazette notification came on October 16 by which time an entire shipload of imported onions perished in Mumbai harbour. The whole process took exactly 36 days, by which time the political credibility of the Government was in tatters.

Nor was this the last word. In her desperation to rush through imports, Sushma contacted India's ambassador to Iran who informed her that onions were available at approximately Rs 10 a kg. The chief minister rushed to Som Pal who advised her that it would be better to use nafed's expertise. The agency's Dubai-based Additional Managing Director S.C. Singhal was contacted and told to rush to Teheran to clinch the deal. It took Singhal four days to reach the Iranian capital, by which time international speculators had ensured there was no deal. Meanwhile, alerted by India's onion rush, world prices climbed steadily, not least because of the multiplicity of Indian agencies scouring the markets. The first lot of onions booked by NAFED cost $245 (Rs 10,300) per tonne, the subsequent order was contracted at $255 and last Thursday the agriculture secretary was asked to clear a further order by nafed at $300 (Rs 12,600). A month's delay between intent and action has resulted in an extra cost of between $25 and $55 per tonne. The tab will be picked up by the taxpayers.

"It's a conspiracy of circumstances against the BJP," complains Sushma. She has a right to cry foul. A trainload of onions bound for Delhi from Nashik was forcibly obstructed by Congress supporters. In Mumbai, Shiv Sena supporters demonstrated before the NAFED office, protesting against the diversion of all imported onions to Delhi. Meanwhile, potatoes have touched Rs 20 a kg, aubergines Rs 20, cauliflower Rs 26 and tomatoes Rs 30. Her woes are seemingly never-ending.

It's quite possible that the BJP Government is caught in a jinx. That is the charitable view. The less charitable view is that the Government is so preoccupied with just being there and resolving its internal strains that it has forgotten the nitty-gritty of governance. Coupled with the casualness of approach, there is a reluctance to confront fundamental policy issues. NAFED's monopoly was irrational and a relic of the licence-permit raj. Yet, it took a crisis of this magnitude to take the first steps in bringing a measure of rationality to the market. Will it be reversed as soon as this crisis eases or will the principle be extended to other areas? Through the onion crisis Vajpayee also gauged the bureaucracy's natural inclination to let inaction prevail. Will he quietly acquiesce? Or will he show leadership? Judging from the potentially damaging after-effects of the onion crisis on the BJP's electoral fortunes, he doesn't have too many options. Or the time.