Peeled to the core: Onion export bans distort markets

livemint.com:

The government has lifted its ban on onion exports but has imposed a minimum export price of $550 per tonne in addition to a 40% tariff. So, while the move spells relief, it is partial at best.

Its timing just ahead of elections in Maharashtra, a key onion-growing state, hints at an attempt to placate farmers who were deprived of opportunities to sell their produce most profitably by the ban. That said, it’s welcome that the ban has been lifted, even if electoral considerations played a role.

Farmer incomes need to be raised and their freedom in deciding what to grow and where to sell their harvest is critical to that. The frequent imposition of such bans on farm commodities, however, amounts to state intervention that distorts the functioning of markets.

Supply and demand conditions need stability within the country for prices to stay stable, so domestic shortfalls have been addressed this way. But it deters farmers from growing a crop if there is state-induced uncertainty over how remunerative it will be.

Besides, such bans are bad for India’s global reputation as a reliable supplier. Whatever the government’s priorities, it must adopt a clear framework that keeps rule-predictability high.