After food prices hit record highs this year, the Centre has been fighting on a war footing to put the inflationary genie back in the bottle. General elections are round the corner, and Prime Minister Modi and his team are acutely aware that high onion prices have flattened governments earlier.
India's headline retail inflation rate crashed past the upper bound of the Reserve Bank of India's (RBI) tolerance range of 6 percent in July, and shot up to a 15-month peak of 7.44 percent, spurred by a massive increase in vegetable prices, data released by the Ministry of Statistics and Programme Implementation (MoSPI) on August 14 showed.
Inflation numbers have eased since, dropping to 4.87 percent in October, thanks to timely government intervention to quell the prices of various commodities. Analysts say the government’s interventions, while helping mitigate inflation, would have adversely impacted farmer incomes.
Onion
Onion prices have been volatile since they first rose in August. Soon after, the government imposed an export duty of 40 percent as they saw that a rise in exports was causing prices to spin out of control.
While the move helped for a bit, prices began to rise again in September, but plateaued at under Rs 50 per kg in the retail market.
As festivities drew closer, onion prices resumed their climb in October and went up to Rs 80 per kg in various markets across the country. On October 29, the government imposed an MEP (minimum export price) of $800 / tonne till the end of year to discourage exports and ensure domestic supplies. This resulted in immediate price correction in the Maharashtra wholesale markets, the Centre said in an official statement.
“We have arrested the rising prices. People were expecting it to go up to Rs 100 a kilogram. That will not happen, thanks to our proactive measures,” Consumer Affairs Secretary, Rohit Singh had told Moneycontrol in an exclusive interview.
The government also announced that it will build a buffer stock of seven lakh tonnes to keep onion prices under check. It has since been disbursing onions in retail outlets across the country.
On December 7, with the average retail price of onion at Rs 57 per kg, the government banned the export of onions until March 2024. On-year inflation in onion prices, per data shared by Crisil, stands at 90 percent in December.
Sugar
India, the world’s second largest sugar exporter, has suffered continuous setbacks with respect to this essential commodity. Below-normal showers in the top cane-growing districts in the western state of Maharashtra and the southern state of Karnataka, which together account for more than half of India’s sugar output, have been a cause of worry for the government.
As the country grapples with rising inflation, reduced sugarcane production, dwindling supplies, and a looming fear of El Nino, the government has chosen to be safe than sorry.
A central directive on October 18, 2023, imposed restrictions on sugar exports till further notice.
But despite restrictions, prices rose by 1.5 percent, from Rs. 43.96 / kg in Oct '23, to Rs 44.62 / kg in Nov '23, said Pushan Sharma, Director, Research, Crisil Market Intelligence and Analytics.
Additionally, on December 7th, a new notification was released banning the use of sugarcane juice / syrup in ethanol production.
“It is anticipated that with the restriction on the use of sugarcane juice for ethanol production, sugar output would increase by 2.5 million tonnes,” said Pushan, adding that sugar production is now expected to be 32 million tonnes against earlier estimates of 29 million tonnes in the 2023-24 sugar season (October 2023 to September 2024).
Domestic prices of sugar have remained elevated, up about 5 percent in December compared with last year, per government data.
Rice and wheat
The retail prices of key agricultural produce such as rice, wheat, onion, and sugar have been on an upswing in the last six months.
In the case of rice, the price rise has been to the tune of 11-12 percent on-year. In order to tame the same, the government has banned the export of non-basmati white rice in July 2023. Later, it imposed a 20 percent duty on the export of parboiled rice, initially till October 2023, which was then extended to March 2024. The government has also announced the disbursal of 25 lakh metric tonnes of rice under the open market sale scheme (OMSS) to cool prices.
However, Crisil expects prices to remain elevated owing to anticipated lower stocks of rice in the country.
In the case of wheat, there’s been a 6-7 percent on-year increase in prices. Apart from a ban on wheat exports from May 2022, in June 2023, the government imposed a stock limit of 3,000 tonnes for wholesalers and traders, and 10 tonnes for small retailers, to control the price rise. Further, the government has also disbursed 30 lakh metric tonnes of wheat under OMSS from June 2023 to moderate the prices.
The government is also dispensing atta at a discounted price of Rs 27.5 per kg in areas where wheat or atta is consumed more, especially in the northern parts of the country.
The government is crunching huge numbers every day to decide points where this subsidised commodity will be sold. “The distribution centres are fully data-driven. Every day I get price points from 550 places in the country. We use absolute prices and how far they are from the national average, as well as historical trends, to determine where Bharat atta will be sold,” Singh had said in the interview.
On December 8, the government further reduced the wheat stock limits for traders / wholesalers, retailers, and processors by 50 percent.
A Crisil assessment shows that in spite of the government’s measures, 35–40 percent lower stocks compared to the average of the last five years is expected to keep wheat prices firm.
On-year inflation in wheat and rice, per data shared by Crisil, stands at 7.2 percent and 13.3 percent, respectively, in December.
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