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All Budgets are important, but there are some which have driven major changes in our nation’s <keyword id="34412" type="ORGANIZATION" weightage="20" keywordseo="economy">economy</keyword>. As India awaits Finance Minister <keyword id="42575" type="PERSON" weightage="20" keywordseo="Arun-Jaitley">Arun Jaitley</keyword> to present another spectacular one this year, we bring 7 momentous decisions taken in some of the most important <a href="http://www.businessinsider.in/Employers-can-expect-something-great-in-Budget-2016-Find-out-what/articleshow/50863858.cms">budgets </a>in the past which our Finance Minister may want to consider before he reads out <a href="http://www.businessinsider.in/KM-Birla-thinks-budget-2016-needs-to-reboot-infrastructure/articleshow/50850369.cms">the next budge</a>t. Take a look: 
 
1951: FIRST BUDGET OF REPUBLIC OF INDIA 
John Mathai who was the Finance minister in the Congress government presented Budget on February 28, 1950. 
 High <keyword id="22195" type="COMPANY" weightage="20" keywordseo="Inflation">inflation</keyword>, increased cost of capital, low level of savings and thus low level of investment and production had marked the years following Independence. This budget laid down the roadmap for the creation of the Planning Commission. The Commission was entrusted with the responsibility of formulating phased plans for effective and balanced use of resources and identifying areas requiring greater attention. The launching of the First Five Year Plan in April 1951 initiated a process of development aimed not only at raising the standard of living of the people but also opening out to them new opportunities for a richer and more varied life. This was sought to be achieved by planning for growth, modernisation, self-reliance and social justice. 
 This budget also reduced the maximum rate of <keyword id="6354751" type="COMPANY" weightage="20" keywordseo="Income-Tax">income tax</keyword> from five annas per rupee, or 30 per cent, to four annas or 25 per cent. Incomes above Rs 1.21 lakh attracted a super-tax rate of 8.5 annas per rupee. The maximum rate of personal <keyword id="6383566" type="PERSON" weightage="20" keywordseo="Taxation">taxation</keyword> was 12.5 annas or about 78 per cent. 
 
1968: PEOPLE-CENTRIC BUDGET 
Morarji Ranchhodji Desai, Deputy Prime Minister and Minister of Finance in the Congress Government presented the Budget on February 29, 1968. The day coincided with his birthday for the second time, the first being on the same date in 1964. He is also the only Union minister to have presented 10 budgets! 
 
In this particular budget, where both a husband and wife were income tax payers, Morarji withdrew the spouse allowance. “It would be improper for any outsider to decide as to who is dependent on whom… to eliminate this unintended strain on the relationship of marriage," he had said in his Budget speech. This Budget also ended the requirement of stamping and assessment by the Excise Department authorities of goods right at the factory gate and introduced the system of self-assessment by all big and small manufacturers, a system still in use. Today, except for some goods such as cigarettes and alcoholic preparations most products are on the self-removal mode for the levy of excise duty. It reduced administrative burden on the Excise Department and curbed discretionary powers with its field officers. It is also seen as a major procedure relaxation that went a long way in boosting manufacturing. Administrative convenience in removal of goods made the process less complicated and tedious. 
 
1973: THE BLACK BUDGET 
Yashwantrao B Chavan, Minister of Finance in the Congress government presented the budget on February 28, 1973 
 
It provided Rs 56 crore for the nationalisation of the general insurance companies, Indian Copper Corp and coal mines. This was a huge sum: the estimate for the budget deficit for 1973-74 was Rs 550 crore. It was considered absolutely necessary to maintain uninterrupted supply of coal in line with the growing demand for coal in various industries like power, cement and steel at the time. It was also believed that the interest of mine workers would be best served in a government-run set-up. 
 
It is argued that nationalisation of coal mines had an adverse impact on coal production in the long run. The coal assets were bundled together under a single government-owned entity with no scope for market competition. There was little incentive for deployment of efficient production techniques and introduction of new technologies. India has been a net importer of coal over the past 40 years. 
 
1986: THE CARROT AND STICK BUDGET 
V.P. Singh, Minister of Finance in the Congress Government presented the budget on February 28, 1986. 
 The MODVAT (modified value added tax) credit which was introduced by him allowed credit/set-off of duty paid on raw materials against the duty on final products. It was aimed to avoid multi-level taxation effect on the final price of goods. It was a modest beginning at major indirect tax reform to culminate in the shift to the Goods &amp; Services Tax regime. This budget also proposed the setting up of a small industries development bank, an accident insurance scheme for municipal sweepers and railway porters, bank loans with a subsidy for rickshaw pullers, cobblers and such self-employed people. It proposed the setting up of Unit Trust of India's mutual fund and Mahanagar Telephone Nigam Ltd. for Delhi and Mumbai. Singh oversaw the beginning of the dismantling of the license raj. He also gave teeth to the Enforcement Directorate of the Finance Ministry and the mandate to sniff out tax evaders. High-profile raids on suspected evaders - including <keyword id="6418409" type="PERSON" weightage="20" keywordseo="Dhirubhai-Ambani">Dhirubhai Ambani</keyword> - forced Rajiv Gandhi to divest Singh of the portfolio. 
 
1987: THE GANDHI BUDGET 
Rajiv Gandhi, the Prime Minister in the Congress government presented the budget on February 28, 1987. 
 
It introduced provisions related to minimum corporate tax, better known today as MAT or Minimum Alternate Tax. It was brought in with the primary objective of bringing into the tax net highly profitable companies that were legally managing to avoid paying income tax. The budget estimates for collections of this tax were modest (Rs 75 crore) but it has since become a major source of revenue, though the figures are no longer revealed. Cigarettes evoked a light moment in Rajiv Gandhi's only budget speech. "In looking for more revenue, I have to fall back on the ever dependable and reliable friend of Finance Ministers and the certified enemy of Health Ministers." He switched to the current system of basing the excise rate on the length of a cigarette rather than its printed price. 
 
1991: THE EPOCHAL BUDGET <keyword id="6359397" type="PERSON" weightage="20" keywordseo="Manmohan-Singh">Manmohan Singh</keyword>, Finance Minister in the Narasimha Rao government presented the Budget on July 24, 1991. 
 
At this time, the balance of payments was precarious and any further postponement of long overdue steps would have been disastrous. Manmohan Singh’s Budget therefore overhauled the import-export policy, slashed import licensing and went for vigorous export promotion and optimal import compression to expose Indian industry to competition from abroad. It also began rationalisation of duty structures by pruning the peak customs duty from 220 per cent to 150 per cent. Notably, Singh introduced service tax in the 1994 Budget to tap into the fastest growing sector of the economy then. Service tax today fetches Rs 58,000 crore against Rs 400 crore in 1994. 
 
1997: THE DREAM BUDGET <keyword id="152470" type="PERSON" weightage="20" keywordseo="Palaniappan-Chidambaram">Palaniappan Chidambaram</keyword>, the Finance Minister in the United Front Government presented the Budget on February 28, 1997. 
 
In view of the fact that a little over one per cent of the population had been for income tax so far, Budget 1997 aimed to widen the tax base. Chidambaram made tax rates moderate for individuals as well as companies and allowed companies to adjust MAT paid in earlier years against tax liability in subsequent years. He also launched the Voluntary Disclosure of Income Scheme or VDIS, to bring out black money and phased out ad hoc treasury bills used for financing the budget deficit. The moderation in rates improved overall compliance as those who used to find rates prohibitive earlier began to pay up instead of hiding their incomes. The incremental tax revenues were leveraged into developmental public expenditure on social welfare and the infrastructure sector. 
 
(Image credit: PTI)

Mr Arun Jaitley, take cue from these 7 Budgets that changed the Indian economy

<ul><li>Polls open in states of Jammu and Kashmir, Assam, Nagaland, Manipur and Arunachal Pradesh where the <keyword id="602141" type="ORGANIZATION" weightage="20" keywordseo="Armed-Forces-Special-Power-Act">Armed Forces Special Power Act</keyword> (<keyword id="60149" type="ORGANIZATION" weightage="20" keywordseo="AFSPA">AFSPA</keyword>) is still enforced. </li><li>The controversial colonial law allows the governed to deploy armed forces in places that they believe are ‘disturbed areas’.</li><li>Congress has promised to amend AFSPA to address international concerns. </li></ul> The colonial law of Armed Forces Special Power Act (AFSPA) is still enforced in four states that will be voting today — Jammu and Kashmir, Assam, Nagaland, Manipur and Arunachal Pradesh. The controversial law has often been called into question for its human rights violations. But, the Indian National Congress has promised to amend the law should they come into power. <div type="ExtQuote" text="Amend the Armed Forces (Special Powers) Act, 1958 in order to strike a balance between the powers of security forces and the human rights of citizens and to remove immunity for enforced disappearance, sexual violence and torture." auname="Excerpt from Congress Manifesto"></div>

 Earlier this week, AFSPA was withdrawn <a href="https://economictimes.indiatimes.com/news/politics-and-nation/afspa-withdrawn-partially-from-arunachal-pradesh/articleshow/68687005.cms">partially</a> in the state of Arunachal Pradesh after being in force for 32 years but its still enforced in three districts — Changland, Tirap and Longing. Even Meghalaya was a AFSPA state as recently as last year until it was withdrawn <a href="https://www.thehindu.com/news/national/what-is-afspa-and-where-is-it-in-force/article23648102.ece">completely</a>. While <a href="https://swarajyamag.com/politics/why-it-is-necessary-for-afspa-to-continue">supporters</a> of the act cite that AFSPA is just an ‘extraordinary measure’ in the face of ‘extraordinary situations’, critics believe that the act is being <a href="https://amnesty.org.in/news-update/indian-government-must-repeal-afspa/">misused</a> to conduct fake encounters and the sexual exploitation of women. What is AFSPA? AFSPA — enacted by the parliament in 1958 — <a href="http://nagapol.gov.in/PDF/The%20Armed%20Forces%20Special%20Powers%20Act%201958.pdf">gives</a> the central or state government the right to call in the armed forces to help the local authorities in places classified as ‘disturbed areas’. The legal immunity of the act allows security forces to arrest people, search private property, and ban the possession of firearms without warrant is as long as they at least have ‘reasonable suspicion’ that a person is about to commit a cognizable offence. For maintaining public order, AFSPA also allows armed forces to prohibit a gathering of five or more people in an area — even by force. The act itself is from the colonial days and was enacted as a reaction to the Quit India Movement led by Mahatma Gandhi in 1942. The arrest of Gandhi, Jawaharlal Nehru, VB Patel and other activists left the movement leaderless and incidents of violence erupted in different parts of the other. Viceroy Linlithgow used the Armed Forces (Special Powers) Ordinance, 1942 to control the riots. In 1947, the one ordinance was split into 4 smaller ordinances to handle violence resulting from the partition efforts — but it was also repealed within the same year. AFSPA was only brought back in 1958 for Assam and Manipur before gradually encompassing the other seven sister states of the north east as well as Jammu and Kashmir. Issues with AFSPA The argument for enacting AFSPA in India was that it is a more efficient way to handle insurgencies. The powers allotted to armed forces allows them to protect the boundaries of the country. And removing strict law from the picture allows the armed forces to carry out orders unhindered, not to mention to morale boost in bringing the rule of law to ‘disturbed areas’. But AFSPA is <a href="https://www.orfonline.org/research/43363-the-road-to-peace-in-kashmir-public-perception-of-the-contentious-afspa-and-psa/">reportedly</a> exploited by people in the armed forces as well. In the name of national security, incidents of fake encounters, sexual exploitation of women and other human rights violations have been brought to light. ‘ Activists like Irom Sharmila who went on a hunger strike for nine years to protest against AFSPA strongly believe that AFSPA overrides dozens of civil rights including the right to freedom of expression and the right to free association. That being said, if a wrong is committed by anyone in the army under AFSPA, they can be prosecuted in a court of law — but the central government needs to sanction an approval. Amnesty International’s <a href="https://www.ohchr.org/Documents/Countries/PK/DevelopmentsInKashmirJune2016ToApril2018.pdf">report</a> calling for the end of AFSPA in Jammu and Kashmir cited 58 case studies where the act was allegedly used in excess by the armed forces. <div type="ExtQuote" text="In responding to demonstrations that started in July 2016, Indian security forces used excessive force that led to unlawful killings and a very high number of injuries. Civil society estimates are that 130 to 145 civilians were killed by security forces between mid-July 2016 and end of March 2018, and 16 to 20 civilians were killed by armed groups in the same period." auname="Amnesty International on the Armed Forces Special Powers Act, 1958 in Jammu and Kashmir"></div>

 Many even <a href="https://www.thequint.com/voices/opinion/would-delhi-dither-on-afspa-if-it-had-been-in-force-in-up-bihar-afspa-in-manipur-thangjam-manorama-irom-sharmila">compare</a> the AFSPA to the Rowlatt Act where the British could imprison any citizen on the basis of suspected terrorist activity against British India for up to two years without there necessarily being a trial. <div type="ExtQuote" text="The repeal of this law will not only bring domestic law more in line with international standards, but also send out a powerful message that instead of a military approach the government is committed to respect for the right to life of all people of the country." auname="Christof Heyns, the UN Special Rapporteur Extrajudicial, Summary or Arbitrary Executions"></div>

 The Indian Army, the organisation actually being accused of these acts, has barely come out in the open to express its stance on AFSPA. Essentially, the act is a last resort. The army is only called in once the situation is beyond the capabilities of the civil administration, the police and the central armed police forces. Congress’ promise Congress, in its election manifesto, has said that they will bring amendments to AFSPA should they win the general election. They faced heavy backlash from the opposition <a href="https://www.news18.com/news/politics/revoking-afspa-in-jammu-and-kashmir-is-like-sending-our-soldiers-to-gallows-says-pm-modi-2094245.html">saying</a> that this is an ‘anti-national’ approach and that Congress is compromising on India’s national security. 
 <div type="ExtQuote" text="The government must have the power to protect its armed forces. Only then will they have the morale to fight. Revoking AFSPA would be like sending our soldiers to the gallows. I won’t let this happen." auname="Member of the Bharatiya Janata Party (BJP) and the current Indian prime minister, Narendra Modi"></div>

 Even Arun Jaitley, the current minister of finance and corporate affairs who aligns with the BJP, and Palaniappan Chidambaram, former union minister of finance and member of Congress, exchanged some harsh words on Twitter. <a href="https://twitter.com/PChidambaram_IN/status/1113747990714314752"> <div type="twitter" handle="arunjaitley" handlename="Chowkidar Arun Jaitley" image="http://pbs.twimg.com/profile_images/378800000828197225/f1d53aeab8f0534c7d73b0fbd5651130_normal.png" favoritecount="10332" retweetcount="4132" status="2019 Congress Manifesto is a Charter to Weaken India. After reading Congress Manifesto my worst fears have come tru… https://t.co/3yTGps3MVa" createdat="1554203974000" id="1113038257279918082"></div>

</a> <div type="twitter" handle="PChidambaram_IN" handlename="P. Chidambaram" image="http://pbs.twimg.com/profile_images/603422412785328128/9Y6OuwJM_normal.jpg" favoritecount="4221" retweetcount="1432" status="Why has Mr @arunjaitley not answered the questions on withdrawal of AFSPA from Tripura (2015), Meghalaya (2018) and… https://t.co/5K4rV1ViIK" createdat="1554373188000" id="1113747990714314752"></div>

 That being said, multiple observations made different committees, like the Justice Santosh Hegde Committee and the J.S. Verma Committee, have found the AFSPA to be arbitrary and have recommended that it should be repealed. The former even explained that rather than create peace in the north east, AFSPA has widened the divide between the people living in the peripheries of India and the mainland.

A brutal military law is among the core election issues in at least 5 Indian states voting today

<div class="image-container float_right" style="width:428px"><div class="image"></div><a href="http://www.travelbusy.com/gallery/">TravelBusy.com / Flickr</a></div>NEW DELHI (AP) — <keyword id="3658" type="COUNTRY" weightage="60" keywordseo="India">India</keyword>'s finance minister Thursday unveiled a national budget with a promise to put Asia's third largest economy back on a path of high growth and to trim the fiscal deficit.
Palaniappan Chidambaram told Parliament that attracting foreign investment was crucial to reversing India's economic slowdown and getting the nation back to fiscal health. Reducing the budget deficit meant the government had no choice but to cut spending, he said.
The budget foresees total expenditure of 16.65 trillion rupees ($306 billion) in the fiscal year that begins April 1. The finance ministry forecast the fiscal deficit to decline to 4.8 percent of gross domestic product from 5.2 percent expected in the current fiscal year.
Among measures to boost revenue, the minister announced a temporary tax hike for the "super rich." The 42,800 people with annual income over 10 million rupees ($186,000) would pay the additional tax for one year.
He also hiked taxes on imported luxury cars, high-end motorcycles and yachts, all of which have become symbols of affluence among India's upper classes. Cigarettes, cigars, mobile phones and SUVs would cost more, as would dining at expensive restaurants, Chidambaram said. Big companies would pay more tax to boost government revenue.
The budget comes against the backdrop of a downhill slide in India's economic growth from earlier levels of 9 percent. The economy is projected to grow about 5 per cent this fiscal year ending March, far below the 7.6 per cent growth projected in last year's budget and prompting calls from economists for an increase in the pace of economic and financial reforms.
The government, led by Prime Minister Manmohan Singh, has over the past two years tried to push through legislation to ease restrictions on foreign investment and allow international retailers to open supermarkets here. But it has faced stiff resistance from opposition politicians, who shut down Parliament over the issue, casting doubt on the government's ability to execute reforms. Last week, India's trade unions and bank employees unions held a country-wide strike to protest economic reforms.
Singh hailed the new budget, saying India "should get back to 8 percent growth in 2 to 3 years." The finance ministry has forecast growth of between 6.1 percent and 6.7 percent in the new fiscal year.
Chidambaram announced a marginal increase in defense expenditure with the budget for safeguarding the country increased to 2.03 trillion rupees ($37.7 billion). The budget has a provision of 867.4 billion rupees for India, the world's top arms and defense equipment buyer, to purchase new defense equipment in the next fiscal year.
With the country headed for general elections in 2014, government spending on costly social programs was projected to go up substantially. The budget has assigned 100 billion rupees for an ambitious food security program.
Chidambaram told lawmakers the country was also facing a current account deficit crisis due to huge imports of oil, coal and gold and a slowdown in exports.
Chidambaram said India would need around $75 billion this year and next year from foreign investment and external commercial borrowing to bridge the current account deficit. The current account is a broad measure of trade and investment balances with the rest of the world.
"India at the present juncture does not have the choice of welcoming and spurning foreign investment. We need to welcome foreign investment," he said.
Opposition political leaders said the budget only made cosmetic changes in taxation and expenditure.
It was "extremely low on substance, with nothing to offer to the poor, and a substantial reduction in budgetary support for the economically deprived," said Arun Jaitely, a leader of the main opposition Bharatiya Janata Party.
Business leaders gave it a higher rating.
"The finance minister's intentions are very clear: to move India back to a higher growth plane. And given his lack of runway, he has taken lots of small measures which together could boost growth," said N. Chandrasekaran, CEO and Managing Director of Tata Consultancy Services, India's top outsourcing company.
Chidambaram tried to dispel the general air of despondency over the Indian economy's slowdown, saying it was "not all doom and gloom."
"Only China and Indonesia are growing faster than India, and achieving high growth is not beyond India's capacity," he said.
"We have done it and we will do it again."

India's Super-Rich Are Getting Hit With A Bunch Of New Tax Hikes

<div class="image-container" style="width:800px"><div class="image">REUTERS</div></div>
IN MAY America’s Federal Reserve hinted that it would soon start to reduce its vast purchases of Treasury bonds. As global investors adjusted to a world without ultra-cheap money, there has been a great sucking of funds from emerging markets. Currencies and shares have tumbled, from Brazil to Indonesia, but one country has been particularly badly hit.
Not so long ago <keyword id="3658" type="COUNTRY" weightage="60" keywordseo="India">India</keyword> was celebrated as an economic miracle. In 2008 Manmohan Singh, the prime minister, said growth of 8-9% was India’s new cruising speed. He even predicted the end of the "chronic poverty, ignorance and disease, which has been the fate of millions of our countrymen for centuries". Today he admits the outlook is difficult. The rupee has tumbled by 13% in three months. The stockmarket is down by a quarter in dollar terms. Borrowing rates are at levels last seen after Lehman Brothers’ demise. Bank shares have sunk.
On August 14th jumpy officials tightened capital controls in an attempt to stop locals taking money out of the country (see "India in trouble: The reckoning"). That scared foreign investors, who worry that India may freeze their funds too. The risk now is of a credit crunch and a self-fulfilling panic that pushes the rupee down much further, fuelling inflation. Policymakers recognise that the country is in its tightest spot since the balance-of-payments crisis of 1991.
<h3>How To Lose Friends And Alienate People</h3>
India’s troubles are caused partly by global forces beyond its control. But they are also the consequence of a deadly complacency that has led the country to miss a great opportunity.
During the 2003-08 boom, when reforms would have been relatively easy to introduce, the government failed to liberalise markets for labour, energy and land. Infrastructure was not improved enough. Graft and red tape got worse.
Private companies have slashed investment. Growth has slowed to 4-5%, half the rate during the boom. Inflation, at 10%, is worse than in any other big <keyword id="34412" type="ORGANIZATION" weightage="60" keywordseo="economy">economy</keyword>. Tycoons who used to cheer India’s rise as a superpower now warn of civil unrest.
As well as undermining 1.2 billion people’s hopes of prosperity, failure to reform dragged down the rupee. Restrictive labour laws and weak infrastructure make it hard for Indian firms to export. Inflation has led people to import gold to protect their savings. Both factors have swollen the current-account deficit, which must be financed by foreign capital. Add in the foreign debt that must be rolled over, and India needs to attract $250 billion in the next year, more than any other vulnerable emerging economy.
A year ago the new finance minister, Palaniappan Chidambaram, tried to kick-start the economy. He has attempted to push key reforms, clear bottlenecks and help foreign investors. But he has lukewarm support within his own party and faces obstructionist opposition. Obstacles to growth, such as fuel shortages for power plants, remain. Foreign firms find nothing has changed. Meanwhile, bad debts have risen at state-run banks: 10-12% of their loans are dud. With an election due by May 2014, some fear that the Congress-led government will now take a more populist tack. A costly plan to subsidise food hints at this.
<h3>Stopping The Rot</h3>
To prevent a slide into crisis, the government needs first to stop making things worse. Those capital controls backfired, yet the urge to tinker runs deep: on August 19th officials slapped duties on televisions lugged in through airports. The authorities must accept that 2013 is not 1991. Then the state nearly bankrupted itself trying to defend a pegged exchange rate. Now the rupee floats, and the state has no foreign debt to speak of. A weaker currency will break some firms with foreign loans, but poses no direct threat to the government’s solvency.
And so the Reserve Bank of India must let the rupee find its own level. The currency has not yet wildly overshot estimates of fundamental value. Raghuram Rajan, the central bank’s incoming head, should aim to control inflation, not micromanage one of the world’s most traded currencies.
Second, the government must get its finances in order. The budget deficit has been as high as 10% of GDP in recent years. This year the government must hold down its deficit (including those of individual states) to 7% of GDP. It is already cutting fuel subsidies, and--notwithstanding the pressures in the run-up to an election--should do so faster.
This is not enough to fix the government’s finances, though. Only 3% of Indians pay income tax, so the government’s tax take is puny. A proposed tax on goods and services, known as GST, would drag more of the economy into the net. It is stuck in endless cross-party talks. If the government can rally itself before the election to push for one long-term reform, this is the one it should go for.
Last, the government, with the central bank, should force the zombie public-sector banks to recapitalise. In 2009 America did "stress tests" to repair its banks. India should follow. Injecting funds into banks would widen the deficit, but the surge in confidence would be worth it.
There are glimmers of hope: exports picked up in July, narrowing the trade gap. But India faces a difficult year, with jittery global markets and an election to boot. Even if it scrapes past the election without a full-blown financial crisis, the next government must do much, much more to change India. Over the coming decade tens of millions of young people will have to find jobs where none currently exists. Generating the growth to create them will mean radical deregulation of protected sectors (of which retail is only the most obvious); breaking up state monopolies, from coal to railways; reforming restrictive labour laws; and overhauling India’s infrastructure of roads, ports and power.
The calamity of 1991 led to liberalising reforms that ended decades of stagnation and allowed a spurt of fast growth. This latest brush with disaster could produce a positive legacy, too, but only if it persuades voters and the next government of the importance of a new round of reforms that deal with the economy’s flaws and unleash its mighty potential.

India's Economy Is In Its Tightest Spot Since 1991. Now, As Then, The Answer Is To Be Bold

<div class="KonaFilter image-container"><div class="image on-image">AP Photo/Rajesh Kumar Singh</div></div>
NITIN JAIN is the big man in Lasalgaon, a dusty town a day's drive from Mumbai that boasts it has Asia's biggest onion market. With a trim moustache and a smartphone stuck to his ear he struts past a thousand-odd tractors and trucks laden with red <keyword id="6470164" type="PERSON" weightage="60" keywordseo="onions">onions</keyword>. Farmers hurl armfuls at his feet to prove their quality. A gaggle of auctioneers, rival traders and scribes follow him, squabbling and yanking each other's hair. Asked why onion prices have risen so much, Mr Jain relays the question to the market. "Why?" he bellows. His entourage laughs. He says that the price of India's favourite vegetable is a mystery that no calculation can explain.
High food prices perturb some men and women even bigger than Mr Jain. Raghuram Rajan, the boss of India's central bank, is grappling with high inflation caused in large part by food prices: wholesale onion prices soared by 278% in the year to October and the retail price of all vegetables shot up by 46%. The food supply chain is decades out of date and cannot keep up with booming demand. India's rulers are watching the cost of food closely, too, ahead of an election due by May. Electoral folklore says that pricey onions are deadly for incumbent governments.
A year ago it seemed that India had bitten the bullet by permitting foreign firms to own majority stakes in domestic supermarkets. The decision came after a fierce political battle. <keyword id="80487" type="COMPANY" weightage="60" keywordseo="walmart">Walmart</keyword>, Carrefour and Tesco have been waiting for years to invest in India. They say they would revolutionise shopping. Only 2-3% of groceries are bought in formal stores, with most people reliant on local markets. They would also modernise logistics chains, either by investing themselves, or indirectly, by stimulating food producers to spend on factories, warehouses and trucks, and establish direct contracts with farmers, eliminating layers of middlemen.
On the ground little has happened. Foreign firms complain of hellish fine print, including a stipulation to buy from tiny suppliers. Individual Indian states can opt out of the policy--which is unhelpful if you want to build a national supermarket chain. In October Walmart terminated its joint venture with Bharti, an Indian group. India has reduced the beast of Bentonville to a state of bewilderment. Tesco has cut expatriate staff.
The reaction from politicians has been indifference. "We have liberalised...to the extent that we can. People have to accept this and decide whether they want to invest," said Palaniappan Chidambaram, India's finance minister. Despite the apparently obvious benefits of supermarkets and the experience of most other countries, few Indians seem to want change.
<h3>You're not in Bentonville anymore</h3>
Just how bad is India's food supply chain? To find out <keyword id="425741" type="UNKNOWN" weightage="60" keywordseo="The-Economist">The Economist</keyword> followed the journey of an onion from a field in the heart of onion country, in western India, to a shopping bag in Mumbai, a city of 18m onion-munchers. The trip suggests an industry begging for investment and reform.
"The system hasn't changed much--it's been the same since the 1970s," says Punjaram Devkar, an elderly farmer in a white cap. For generations his forefathers have grown onions near a hamlet called Karanjgaon. He owns a crudely irrigated six-hectare (14-acre) plot, larger than the national average farm of just 1.2 hectares. He does not want to buy more land; unreliable electricity and labour mean "it is too hard to manage." There are four onion crops each year--in a good season production is three times higher than in a bad one. To hedge his bets he also grows sugar cane. Costs have soared because of rising rural wages, which have doubled in three years. He says welfare schemes have made workers lazy. "They just play cards all day."
Storage facilities amount to a wooden basket inside a shed--at this time of year onions perish within 15 days, although the variety grown in the spring can last eight months. From here one of Mr Devkar's finest is thrown into a small trailer, along with the produce of nearby farms, and taken to Lasalgaon. The roads are mostly paved but the 32km (19-mile) journey takes a couple of hours in a rickety old tractor.
Lasalgaon neophytes will find their eyes water upon entering its market, a huge car park full of red onions, trucks and skinny farmers. Although the auction is run twice daily by an official body, it doesn't look wholly transparent. Some farmers complain that Mr Jain and another trader dominate the trade (Mr Jain denies this). Prices vary wildly day by day and according to size and quality, which are judged in a split second by eye. The average price today is $0.33 per kilo.
Neither traders nor farmers agree why prices have risen so steeply of late. They blame climate change, the media, too much rain last year, too little rain this year, labour costs, an erratic export regime. "Our biggest problem is illiteracy," says one farmer. "We don't know how to use technology." Most folk agree that India needs better cold storage but worry that it is too pricey or that it ruins the taste of onions.
Farmers must pay a 1% fee to the auction house and a 4% commission to the traders. Sometimes they also have to stump up for fees for packing and loading. That takes place at several depots surrounding the market where farmers must drop off their loads and pour them onto tarpaulins on the ground. The onions may wait there for days but once put into hessian sacks they are loaded onto trucks operated by separate haulage firms and owned by intricate webs of independent consortiums.
At 8pm Prabhakar Vishad, a 20-year veteran of the onion-express highway from Lasalgaon to Mumbai, climbs into a battered Tata truck with "Blow Horn" painted in big letters on the back. Over the years the roads have improved and power steering has made life easier. Still, it is dangerous work, says Mr Vishad, who had a bad crash last year. By 6am next morning he sets his bloodshot eyes on Vashi market on the outskirts of Mumbai. It handles 100-150 truckloads of onions a day--enough to satisfy India's commercial capital.
Onions are sometimes unpacked, sorted and repacked, with wastage rates of up to 20%. By 9am the market is a teeming maze of 300-odd selling agents, who mainly act on behalf of middlemen, and several thousand buyers--who are either retailers or sub-distributors. Everyone stands ankle deep in onions of every size. The bidding process is opaque. The selling agents each drape a towel on their arm. To make a bid you stick your hand under the towel and grip their hand, with secret clenches denoting different prices. Average prices today are about $0.54 per kilo. If the seller likes your tickles you hail a porter. He carries your newly bought sacks on his head to a dispatch depot where another group of couriers takes them into the city.
"I'm crazy, like the guys you see in the movies. I don't negotiate," declares Sanjay Pingle. One of the market's biggest agents, he charges the seller a 6.5% commission. The buyers pay loading charges on top of that and a fee to the market. He says business is tough--bad debts from customers run at a fifth of sales and he has to pay interest rates of 22% on his own debts. The solution to the onion shortage is obvious, he says. "In China they keep things in storage facilities--if India had the same facilities as China has, prices would be lower." He says he has seen photographs of Chinese technology on his mobile phone.
By the afternoon thousands of cars and trucks are picking up small batches of onions to take them into Mumbai. In Chembur, a middle-class neighbourhood, Anburaj Madar runs a big sub-distributor. He handles 200 sacks a day which he sells to retailers and restaurants. He buys daily from Vashi market and has space to store only about 12 hours' worth of stock. Rent is dear and he too reckons cold storage destroys the flavour of onions. He marks up his prices by perhaps 20% but says a chunk of what he buys has to be thrown away--it is either damaged or of inferior quality.
For the onions that do make the cut the next stop is a small shop down the road where they are sold for another mark-up of 10% or so. From here Indubai Kakdi is hand-selecting onions with elaborate care. Buck-toothed and ragged, she sells seven kilos a day from a wooden barrow; she makes a 10% margin. She says climate change has made prices more volatile.
<h3>Peeling back the layers of truth</h3>
The journey of an onion from Mr Devkar's field to the end customer in Mumbai takes only a few days but is enough to make you weep. There are some underlying reasons why prices have risen--higher rural wages have pushed up farmers' costs. But the system is horribly fiddly. Farms are tiny with no economies of scale. The supply chain involves up to five middlemen. The onion is loaded, sorted or repacked at least four times. Wastage rates, either from damage or weight loss as onions dry out, are a third or more. Because India has no modern food-processing industry, low-quality onions that could be turned into paste or sauces are thrown away. Retail prices are about double what farmers receive, although the lack of any standard grading of size or quality makes comparisons hard.
The system is volatile as well as inefficient. Traders who buy onions from farmers may hoard them, but for the supply chain as a whole far too little inventory is stored. As a result small variations in demand and supply are amplified and cause violent swings in price. In the first week of December 2013 prices fell again.
It is easy to see how heavy investment by supermarket chains and big food-producers--whether Indian or foreign--could make a difference. They would cut out layers from the supply chain, build modern storage facilities and probably prod farmers to consolidate their plots.
The shoppers of Chembur agree that Indian onions are the world's tastiest but are fed up with price swings. No one mentions reform as a solution and until there is popular support and political leadership it is hard to see much changing. And what of the last stage of the onion's odyssey, to the stomach? By one stall stands an elderly lady who says she likes the vegetable so much that she doesn't bother to cook it. Instead she chomps on raw onions as if they were apples. At least someone has an eye on efficiency.
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