Jury out on impact of stockholding limits on onions, potatoes

Government has brought back the two commodities in the ambit of the Essential Commodities Act, 1955

Reacting swiftly to the rise in the prices of onions and potatoes, the government has brought back the two commodities within the ambit of the Essential Commodities Act, 1955, to enable states to impose stock limits on these. This is aimed at ensuring smooth supply to curb the tendency to hoard these in anticipation of a price rise.

The move has, however, failed to impress critics, who say the step is unlikely to lead to any major change, as evidence shows onions and potatoes are among the least hoarded commodities, owing to their perishable nature. “Instead of clamping down on traders, the government should have simply allowed free import of onions and potatoes, which could have increased supply immediately and disincentivised people to hoard,” Rajendra Sharma, former chairman of Delhi’s Azadpur Agriculture Produce Marketing Committee (APMC), told Business Standard.

The Essential Commodities Act enables state governments to impose a stockholding limit on a particular commodity and conduct raids to unearth stored items exceeding prescribed limits. Currently, there are stockholding limits on pulses, edible oils, oil seeds (till September), and rice and paddy (till November).

Data from the Department of Consumer Affairs show stockholding limits have a mixed impact on prices. From January 1 to July, prices of urad dal in retail markets across major cities rose by Rs 10-15 a kg, while those of moong and masur dal increased by Rs 8 a kg and Rs 7 a kg, respectively. Rice prices increased by Rs 1-2 during this period. But the retail price of tur dal fell by Rs 2-4 a kg and that of mustard oil declined by Rs 2-4 a kg.

“I’m against the Essential Commodities Act, 1955, as it has not been very effective in controlling hoarding, primarily in the case of perishable items such as onion and potatoes, said Gokul Patnaik, chairman of Global AgriSystem, a leading agribusiness consulting group. “In fact, I feel the Act should be scrapped and the government should focus on measures such as raising the minimum export price to check export of onions and potatoes.”

Brahm Yadav, former chairman of Delhi Agricultural Marketing Board, said in Azadpur, there was little possibility of hoarding onions and potatoes, either by traders or wholesalers. “The trader has to compulsorily dispose of his stock; else, he cannot purchase the next day’s consumption,” Yadav said, adding in the past few years, there had been a tendency to hoard onions, but this was mostly at the point of sale.

He said hoarding usually took place in the case of cereals, pulses and oilseeds, as these commodities could be stored for months. “I feel such a measure might bring back the inspector raj and increase corruption,” he added.

T Haque, former chairman of Commission for Agriculture Costs and Prices, however, is hopeful. He says the move will ensure farmers get the right price for their produce and availability will increase, providing relief to consumers. “This is a step in the right direction,” he said.