Moneycontrol
Feb 11, 2013 10:40 AM IST | Source: ft.com

Indian ministers watch their onions

A sharp rise in the cost of onions - a vegetable of volatile price that is credited with toppling two Indian governments since 1980 - has sent jitters through the Congress-led coalition government of Manmohan Singh, the Prime Minister.


A sharp rise in the cost of onions - a vegetable of volatile price that is credited with toppling two Indian governments since 1980 - has sent jitters through the Congress-led coalition government of Manmohan Singh, the Prime Minister.


"I have instructed the food and civil supply department to keep a watch on market trends and take strict action against hoarders," declared Sheila Dikshit, the Delhi chief minister, in a letter to Sharad Pawar, national agriculture minister. She also asked him to curb onion exports "to bring about an improvement in onion rates".


Many Indians use onions in almost every meal, and some form of bread with onion is regarded as a basic diet for the poor. "You can't make a good curry without onions," says Rajeev Malik, Singapore-based senior economist at CLSA, the broker. "It's very sensitive, and as you get into the political season it can have adverse consequences."


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With Mr Singh's government preparing a budget this month, dealing with inflation of more than 10 per cent and facing a general election in early 2014, the last thing it wants is an uncontrolled surge in the price of a basic food. Wholesale onion prices rose 50-60 per cent in December and are up sixfold from a year ago.


In Delhi and Mumbai, where customers are paying Rs25-35 (50-65 US cents) per kilogramme, the price rise is blamed on inadequate supplies because crops were hit by dry conditions in onion-producing areas.


"How are poor people going to eat if the prices keep rising like this?" asked Tara Sindhe, 45, who was buying onions in Mumbai's Colaba market on Friday. "We still have to buy onions. We have to eat. Now I buy just half a kilo where I used to buy one kilo. And the prices will continue going up."


Economists blame the return of the onion crisis that regularly haunts Indian governments on the country's failure to improve its transport and distribution infrastructure and on a reluctance to liberalise markets.


An investigation by the National Council of Applied Economic Research into a similar jump in onion prices between November 2010 and January 2011 found that wholesalers, who are protected by government regulations, make such large margins that price signals are not effective at influencing production and supply. India is second only to China as an onion grower and produces some 15m tonnes a year.


"The same ghost from time to time reappears," said Mr Malik. "The broader issue is that India does not really fix problems. The onion issue was there not even two years ago. Has the government done anything to fix such occurrences? The answer is no."

Government officials have sought to soothe consumers, saying that supplies will improve within weeks. "The rise in prices is a temporary phenomenon," said Mr Pawar, the agriculture minister, after a visit to what he called "the key onion areas" this week.

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