In an almost clockwork-like fashion, food items are lining up to deliver price shocks to the Indian economy. Russia's invasion of Ukraine sparked a surge in the prices of key cereals globally, and India was no exception. Domestic developments such as death of cattle due to the lumpy skin disease and expensive fodder meant the prices of milk and related products started to rise next – and continue to exhibit upward pressures.
Then came a variety of food items, including rice, jeera, ginger, garlic, chillies, and tomatoes. The humble onion is next.
Also Read: CPI inflation faces lactose issues as milk inflation hits 8-year high
To be sure, huge annual and sequential price increases are not limited to these food items. But the common thread between them is that they happen to be the most commonly purchased items. In fact, put together, all these items make up 16.5 percent of a household's monthly expenditure, or, in other words, they account for 16.5 percent of the Consumer Price Index (CPI) basket.
Late on August 19 – days after data showed CPI inflation surged to a 15-month high of 7.44 percent in July – the government announced its latest measure to improve the domestic supply of onions and control prices: a 40 percent duty on their export. The next day, on August 20, it hiked the quantum of onion buffer to five lakh metric tonnes from three lakh metric tonnes so that the vegetable could be sold at a discount in major consumption centres. Starting today, August 21, onions will be sold from the buffer to retail consumers at Rs 25 per kg.
"The multipronged measures taken by the government like procurement for the buffer stock, targeted release of stocks, and imposition of export duty will benefit the farmers and consumers by assuring remunerative prices to the onion farmers while ensuring continuous availability to the consumers at affordable prices," the Ministry of Consumer Affairs, Food and Public Distribution said on August 20.
Hot-as-curry prices
The government's latest price control measures come amid a sharp increase in onion prices, which are 20 percent higher compared to last year and up more than 10 percent month-on-month (MoM).
But why the restriction on trade?
In June, India's onion exports amounted to $55.79 million, nearly 50 percent higher than the same month last year. For April-June, the year-on-year (YoY) growth in onion exports was just under 12 percent.
But in volume terms, the amount of onions exported was 89 percent higher in June and 30 percent higher in April-June on YoY basis.
Clearly, some short-term measures were needed. For the long term, the non-partisan staff of the Reserve Bank of India (RBI) have called for some "major reforms".
"The vulnerability of the economy to the recurring incidence of vegetable price shocks, especially ahead of and during the monsoon, warrants major reforms in perishable supply chains covering transportation networks, warehousing and storage technologies, and value addition processes that dampen the amplitude of these swings," the central bank's economists said in the monthly State of the Economy article – on August 17. While the article does not reflect the RBI's official view, it counts Deputy Governor Michael Patra as one of its co-authors.
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