Regulating international trade, as has been attempted by the India federal government, which regularly tries to influence the domestic onion trade, is seen to be an overused tool, executed through Minimum Export Prices (MEP) or complete trade bans.
Critics say these ad hoc decisions are at best inconsistent with the overall economic climate, and the mood of policies that are required to boost rural demand.
The ban on exports is not only a departure from the overall incentive plans for Indian exporters, it is also likely to dampen the much-required attempts made through income-support schemes to drive rural consumption. As the government laudably announced the demand of revival efforts and the speeding up of cash transfers under the P.M. Kisan scheme and Farmer Pension schemes, with the aim of increasing disposable income available to farmers, export bans are likely to crowd-out the impact that these policies were likely to make.
With over 13.15 million hectares under cultivation, the number of farmers involved in onion production is significant. Thus, while rising prices temporarily impact the consumption basket and inflation, the impact of lost income will be lasting, given that disposable incomes are currently very low. This implies that, amidst attempts to revive rural demand, while inflation is kept under watch, it is important that other economic indicators are not ignored.