The apex body of consumer cooperatives – National Cooperative Consumers’ Federation of India – will start selling onions at a subsidised rate of Rs 25 per kg through retail outlets and mobile vans from August 21 (Monday), in what is being seen as yet another direct market intervention by the central government.
The move comes a day after the Centre took a major step of imposing 40 percent export duty on onions – aimed at discouraging exports, improving the availability of the staple item in the domestic market and cooling down prices ahead of the festive season. “The notification shall come into force with immediate effect and will remain in force up to and inclusive of December 31, 2023,” the government said.
At present, the onion buffer stock is 3 LMT (lakh metric tonnes), for which the Centre has decided that this will be raised to 5 LMT. It has also directed the NCCF and NAFED to procure 1 LMT of onions each “to achieve the additional procurement target alongside calibrated disposal of the procured stocks in major consumption areas”.
“The retail sale of onions will be suitably enhanced in the coming days by involving other agencies and e-commerce platforms,” the government said. In fact, just eight days ago, the department of consumer affairs had decided to directly intervene in the market and release onions from the government’s buffer stock.
Why is the government subsidising onion prices?
These pre-emptive measures have been taken to avoid a repeat of the never-before-seen inflationary trend in tomato prices, which had breached the Rs 200-mark in some markets. This had forced the department of consumer affairs to intervene and provide tomatoes at subsidised rates.
The consumer price index (CPI) inflation rose sharply to a 15-month high of 7.44 percent in July on the back of rising prices of vegetables and cereals. The consumer food price index (CFPI ), which accounts for nearly half of the CPI, had hit a high of 11.51 percent in July as compared to 4.49 percent in June. The sharp rise in the CFPI could be attributed to surging prices of vegetables, especially tomatoes.
Food inflation is a big worry for the Narendra Modi-led government, particularly with elections in three states by the end of the year and Lok Sabha next year. The Centre has been tracking inflation and has taken measures since the beginning of the year to combat rising prices of cereals, pulses, edible oils and vegetables.
From direct intervention in market supplies to tweaking export-import policy and imposing stock limits, the government is using all it has in its arsenal to tame inflation. Extreme weather conditions, the El Nino effect and geopolitical situation is more cause for caution.
“The current problems are due to the impact of adverse weather since the beginning of the year. Due to these problems, the production of several agricultural commodities have been adversely affected and it’s causing food inflation,” said former agriculture secretary Siraj Hussain.
“The government is right to be concerned about the impact of food inflation on core inflation. Therefore, the measures taken to increase domestic supply of various items can be justified. But we should remember that India’s agricultural surpluses are marginal and similar problems are likely to arise in future as well,” he said.
Tomato price tsunami
It was the unprecedented surge in the price of tomatoes due to crop damage on account of adverse weather conditions, that posed the toughest challenge for the Centre. End of June, the government announced the ‘Tomato Grand Challenge’ hackathon on similar lines of the ‘Onion Grand Challenge’ hackathon.
It was to invite innovative ideas to enhance the availability of the perishable commodity in different forms and reduce price volatility. Towards mid-July, the Centre decided to procure tomatoes from Andhra Pradesh, Karnataka and Maharashtra for distribution at subsidised rates. It started distribution of tomatoes at 90 per kg from July 14 in Noida, Gurugram and Delhi; adding Lucknow on July 15 and, later, Kanpur until prices were slashed to Rs 40 per kg now.
Wheat and rice: India’s staples
To cool inflationary trends in prices of wheat and wheat flour, a group of ministers led by union home minister Amit Shah made the following recommendations on January 25:
- The Centre approved a proposal to offload 30 LMT of wheat from the central pool in the open market under the open market sale scheme (OMSS). The stipulation was that the buyer will convert the wheat into flour and offer it to the public at a maximum retail price of Rs 29.50 per kg.
- Wheat was made available for traders, state governments, cooperatives, federations, public sector undertakings/kendriya bhandars/NAFED/NCCF at 23.50 per kg for sale at Rs 29.50 per kg.
- In the beginning of February, kendriya bhandars, NAFED and NCCF started selling atta at 29.50 per kg through different retail outlets and even mobile vans, under the name of ‘Bharat Atta’. By mid-Februray, the government decided to offload another 20 LMT of wheat under the OMSS.
- The export policy of wheat was already amended from “free” to “prohibited” category on May 13, 2022, for restricting the export of Indian durum wheat and, from July 12, 2022, the export of atta was subject to the recommendation of the inter-ministerial committee on export of wheat.
- Mid-February, the ministry of consumer affairs, food and public distribution decided to further reduce the reserve price of wheat under the OMSS to Rs 2,150 and Rs 2,125 pan-India. In June, the Centre imposed stock limits on wheat applicable to all stakeholders with immediate effect till March 31, 2024.
- After a break due to the rabi season procurement, in August, the government decided to offload another 50 LMT of wheat and 25 LMT of rice under the OMMS scheme. However, this time, state governments were not allowed to procure from this pool and the maximum quantity a stakeholder could buy was also reduced. The government banned the export of non-Basmati white rice on July 20 with immediate effect.
Pulses: Toor, urad, moong, masoor, chana
The rising prices of pulses is also a cause for concern. India has always been dependent on imports to meet the domestic requirement. The import of popularly consumed pulses like toor and urad have been kept under the “free category” while import duty on masoor has been reduced to 0 till March 31, 2024.
Towards the end of March, the Centre formed a committee to monitor the stock of toor, particularly imported dal, and pulse importers were directed to declare all stocks available with them. In the beginning of June, the Centre imposed stock limits on urad and toor with immediate effect till October 31.
Importers were asked not to hold stocks beyond 30 days after customs clearance. Mid-August, the government issued an advisory to all state governments and UTs to enforce stock disclosure. In another major decision to boost domestic production, the government removed the 40 percent ceiling for procurement of toor, urad and masoor under price support scheme (PSS) for 2023-2024.
This decision is expected to encourage farmers and increase the sowing area and, hence, boost production. End of June, however, the government decided to release toor from the national buffer till imported stocks arrived in Indian markets through online auction among eligible millers and state governments.
On July 17, the union minister for consumer affairs, food and public distribution launched the sale of subsidised chana dal under the name ‘Bharat Dal’ at Rs 60 per kg and Rs 55 per kg for a 30-kg pack through NAFED, NCCF and kendriya bhandars. This scheme is also open to state governments. The Centre may provide subsidised toor dal in a similar fashion.
Edible oils
India imports around 50 percent to 60 percent of its domestic requirement of edible oils and is, in fact, one of the world’s largest edible oil importers. This makes the price of edible oils in the domestic market more vulnerable to international fluctuations. Thus, the Centre’s major intervention has been to encourage imports by slashing duties and engaging with major edible oil players to moderate prices from time to time.
The basic import duty on crude palm, soybean and sunflower oil was slashed from 2.5 percent to 0, and the agri cess on these oils was brought down from 20 percent to 5 percent. The basic duty on refined soybean and sunflower oils has been reduced from 32.5 percent to 17.5 percent.
The basic duty on refined palm oils was reduced from 17.5 percent to 12.5 percent on December 21, 2021, and this duty was extended up to March 31, 2024. The import of refined palm oils is under the “free category” till further orders.
In his Independence Day speech from Red Fort on August 15, Prime Minister Narendra Modi had addressed the burning issue of inflation. “The world has still not recovered from the Covid-19 pandemic. The war in Ukraine has also given rise to another crisis. Inflation has impacted the global economy,” he had said, detailing measures that the government has already taken while committing to mitigate the impact of rising food prices on people.
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