Onion prices cause headache for Indian government

The price of one of India’s key asset classes is rocketing, and it is the government that will feel the pressure

Onions, a crucial ingredient for most Indian diets, have become one of its most politically sensitive assets as the country enters yet another crisis over prices. But, while Prime Minister Modri’s government – currently facing an important regional election – puts the price hike down to unseasonal rains and a poor harvest, critics are arguing there may be more sinister forces at work.

Prices at the huge Lasalgaon wholesale market – the country’s biggest – rose to Rs 57 per kg last Saturday, breaking the previous record of Rs 55 in September 2013. And, since the beginning of August, prices have risen more than 80%, the Economic Times of India reported this week.

Any spike in prices will cause resentment among consumers and add to Prime Minister Narendra Modri’s worsening headache ahead of the crucial state legislative assembly elections in Bihar.

According to a report in the Financial Times, about 25% to 30% of India’s population spends more than half its monthly household income on food. Pressure, particularly from the poor and the urban working class is mounting as Modri struggles to keep inflation under control. A 2012 economist magazine editorial argues that the “accepted wisdom” is that inflation hurts the poor most and, since the majority of people in India are poor, can quickly lead to a backlash. Food policy – in particular policy relating to the control of inflation is therefore a potent part of any government’s attempt to retain support.

Some areas of the country have resorted to issuing limited amounts of heavily subsidised onions, while New Delhi has raised the minimum export price to $700 per tonne, up from $425 in June to try and ease pressures on existing stocks, the Financial Times said.

The government have put the shortage down to unseasonal rain during the March-June growing season, which yields about 60% of India’s total annual onion production. But, in a column in the Mint online paper, Anil Padmanabhan argued that the government’s “prima facie claim” ignores a more sinister conclusion.

“It smacks of manipulation by traders – and from the fact that they have not been put on the mat as yet, one can surmise they have their political godfathers.”

He argues that production has actually increased in the past few years, by more than enough to absorb an increase in exports.

“Almost every politician today holds forth on their concerns for the aam aadmi (common man),” he argues. “It is time they walk the talk – alternatively, every meal will be a grim reminder of a broken promise.”

Ellie Clayton 

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