Single market truths

Lessons of Bengal's ill-advised restriction on potato trade

After being hit by the cyclonic storm Phailin, eastern India is now being threatened by a political storm of its own making. Resentment is brewing in Odisha and Jharkhand over the West Bengal government's decision to stop the movement of potatoes to neighbouring states. On Saturday, local politicians across the board in Odisha's border district of Balasore held up trucks carrying fish and onions to West Bengal in order to register their protest. On Sunday, Jharkhand Chief Minister Hemant Soren pointed out that West Bengal itself was "not self-sufficient" and received large quantities of vegetables from Jharkhand.

A sudden rise in potato prices late last month in West Bengal, a traditionally surplus state, caused Chief Minister Mamata Banerjee to take over the agricultural marketing department and take two major decisions: control the open market price and ban supplies to other states. These are absolutely wrong moves and are bound to be counterproductive eventually. Potatoes disappeared from markets immediately after prices were controlled and long queues formed at government shops selling the vegetable at the official price in small quantities. And, in any case, India must always be a single market. The smaller the market, the greater the volatility in produce prices. Ms Banerjee may deliver cheaper potatoes, but at a price - everything else would become more expensive.

India must learn the right lessons from this crisis. Lesson number one: never control the open market price. This simply drives all stocks underground and makes every other person a hoarder and an implicit lawbreaker. Lesson number two: bring down the open market price by pushing up supplies. This can be done in the short run by requisitioning large wholesale stocks - either physically in godowns or, as in the case of potatoes in West Bengal, in cold storage. Lesson number three: never ban movement of such produce to other states. This is difficult to enforce; it could lead to smuggling, corruption and strained relations. Instead, work on co-ordinated action. Lesson number four: don't be caught napping and then take precipitate action. The seeds of the present crisis were sown when adverse weather first affected the crop in Punjab, another major supplier, and more recently all agricultural activity in eastern India and Andhra Pradesh. Traders saw the late heavy rains would delay sowing in West Bengal and the arrival of the new crop in January, and so they began to regulate its release. The agricultural marketing department should have seen it coming and acted earlier. Lesson number five: have a long-term policy for agricultural development. This is still missing in West Bengal, although the Trinamool Congress government has been in power for more than two years. Lesson number six: modernise the agricultural supply chain by allowing big retailers to procure directly from farmers. This will make everyone - both farmers and consumers - happy.