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Indian elections swing on soaring price of onions

Published: 10:06PM Friday February 08, 2013 Source: Reuters

Onion prices have climbed sharply in India following a drought, a worry for the government, as it heads into state elections that have been known to turn on the cost of the vegetable.

Prices have more than doubled in the last three months and no respite is in sight. Supplies remain tight, as low rainfall has cut sowing and curtailed growth of individual bulbs.

Indians eat their way through 15 million tonnes of onions a year, using them as the base for traditional dishes such as biryani and bhaji, and making them a hot political issue and a kick to inflation when the price rises.

"I don't understand how suddenly prices skyrocket," said Pooja Kadakia, 28, a housewife shopping in central Mumbai. "I have to buy at whatever price vendors are asking. I can't buy less just because prices are high"

Onions cost 35 rupees (NZ 79 cents) per kg today, compared with 10 rupees (NZ 22 centrs) three months back. Further increases look likely, with food inflation running in double digits.

"Planting is down in all the major producing states," Satish Bhonde, a director at the National Horticultural Research and Development Foundation, said. "There is severe water scarcity in Maharashtra, Gujarat and Karnataka,"

Bhonde predicted a 10% drop in production from last year. India produced a record 17.5 million tonnes in 2011/12.

Relief could come with the new crop in October, but the government faces 10 state elections this year and needs a good summer monsoon. National elections are due next year.

The opposition Bharatiya Janta Party (BJP) will be sure to use rising prices against the Congress party-led government in the campaigns. In 1998, the BJP suffered heavy losses in a key state poll, a result widely blamed on high onion prices.

"The recent political history shows onion price rises go against the ruling party," said Jaidev Dole, an analyst at Marathwada University in Maharashtra.

"The government is already unpopular - the onion price rise may be the last straw that breaks the camel's back."

Battling corrution, inflation

The coalition government faced a string of corruption scandals last year and is battling to get the sluggish economy back on track while trying to control inflation, with food prices rising 13% year-on-year in December.

"Until the next onion crop arrives, prices will remain high," said Madan Sabnavis, an economist at CARE Ratings. "It will definitely have an adverse impact on inflation."

The Congress-led state government of Maharashtra, the top onion producer, is planning to act against hoarding and limit the amount of stock traders can hold, a state official said.

Traders are talking about a repeat of the 2011 export ban.

"The government can ban exports, start imports through state-run agencies," said a Mumbai-based exporter, who declined to be identified. "These measures can help a bit, but they can't pull down prices sharply."

India, a key supplier to Asian and Gulf countries, exported 1.38 million tonnes in the first 10 months of the financial year from April 1, 2012, up 10.4% from a year earlier.

But the government may not have to intervene.

"Already exports are slowing due to higher prices," the Mumbai exporter said. "Pakistan is offering a steep discount compared to Indian quotes."

What could make a difference would be to improve a creaky distribution system and storage. Post-harvest losses account for nearly 30% for all vegetable production.

"Every year, improper handling and storage leads to large scale wastage," said Bhonde of the Horticultural Foundation. "If we minimise the wastage, we can arrest price rise."

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