These figures are sure to bring tears to one’s eyes.
On Thursday, onions traded at Rs 4,900/quintal (or Rs 49/kg) at Lasalgaon in Maharashtra, India’s largest wholesale market for the crop. Inadequate supplies have pushed up prices sharply over the last few weeks. Already, onion prices have touched Rs 80/kg in some parts of Delhi bringing back memories of 2013, when the vegetable was retailing at Rs 100/kg in some pockets.
So, what is pushing up prices?
First, unseasonal rains and hailstorms in March and April damaged the rabi crop affecting supplies. The July-September period is the lean phase for onion production and the demand during this time is met from rabi stocks. The rains and hailstorms have also affected the winter harvest, which accounts for about 55% of the total production, damaging a significant amount of stocks.
Separately, inconsistent rains in the main onion producing states of Maharashtra, Karnataka and Andhra Pradesh have delayed planting of the kharif crop.
While conceptually inflation may be an economic construct, politicians always try and keep one eye on the price movements because an untamed inflation monster can have grave electoral implications. Former prime minister Indira Gandhi stormed back to power in 1980 riding on increasing street protests against steep onion prices.
In 1998, current external affairs minister and the then Delhi chief minister Sushma Swaraj faced the wrath of an angry electorate over high onion prices losing the state polls to the Sheila Dikshit-led Congress. There are a few signs that the government and the Reserve Bank of India (RBI) would do well to keep a constant vigil.
The value of the rupee, among other things, provides an early peek into future price movements. A weaker rupee makes imported goods such as crude oil and gold expensive. Costlier crude oil and the resultant increase in fuel prices can push up prices of most goods.
The local currency has fallen a couple of rupees since China devalued the yuan to keep its export price competitive in a bumpy world economy. A persistently weak rupee could prompt the RBI to keep interest rates high to maintain India’s attractiveness as a debt-market to keep the dollars coming in.
On the administrative side, there is a live example in the current onion crisis. A country-wide goods and services tax can help neutralise the indirect tax costs.
Efficient movement of goods free of fiscal barriers and a common national market can help deal with such unforeseen price shocks of essential and other items.