Why imported onions are rotting? Economic Survey 2020 has an answer

Wondering why imported onions are rotting in absence of takers while prices remain volatile in local market due to export curb? The Economic Survey 2019-20 has tried to give a straight answer - Government intervention hurts more than it helps, at least in some cases. The Survey says that frequent and unpredictable imposition of blanket stock limits on commodities under Essential Commodities Act (ECA) neither brings down prices nor reduces price volatility.

It says that such intervention only leads to rent-seeking and harassment, something which sector experts have been saying for a long time now. The Act is anachronistic as it was passed in 1955 in an India worried about famines and shortages; it is irrelevant in today's India and must be jettisoned, the survey recommends.

It has the same prescription for several other laws too, and wants government departments to find more such laws that need serious review. According to the Survey, the regulation of prices of drugs through the Drugs Price Control Order (DPCO) 2013, again promulgated under Essential Commodities Act, has led to increase in the price of a regulated pharmaceutical drug vis-a-vis that of a similar drug whose price is not regulated. "Our analysis shows that the increase in prices was witnessed for more expensive formulations than for cheaper ones and those sold in hospitals rather than retail shops, reinforcing that the outcome is opposite to what DPCO aims to do - making drugs affordable. The evidence across different commodities (pulses, sugar, onions and drugs) - not just onions or sugar where cartelisation is often suspected - and episodes spanning different time periods (2006-19) suggests that the ineffectiveness of ECA stems from unnecessary government intervention that undermines markets," it says.

The government procurement of food grains has also been criticised for being anti-competitive. "This has led to overflowing of buffer stocks with FCI, burgeoning food subsidy burden, divergence between demand and supply of cereals and acted as a disincentive towards crop diversification," it said.

The negative fallout of debt waivers given by States/Centre was another policy decision that was suggested to be counterproductive. The Survey says that full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver when compared to the partial beneficiaries. The share of formal credit decreases for full beneficiaries when compared to partial beneficiaries, thereby defeating the very purpose of the debt waiver provided to farmers.

The Survey wants each department and ministry to systematically examine areas where the government needlessly intervenes and undermines markets. While it is not against blanket liberalisation, it says that interventions that were apt in a different economic setting may have lost their relevance in a transformed economy. "Eliminating such instances of needless Government intervention will enable competitive markets and thereby spur investments and economic growth," the Survey says.

Also read: Economic Survey 2020: The thali, India's own Big Mac Index