News / Economy

Onion Prices Sting India's Central Bank Ahead of Policy Review

Vendors sort onions at a wholesale vegetable market in Kolkata, Sept. 18, 2013.
Vendors sort onions at a wholesale vegetable market in Kolkata, Sept. 18, 2013.
Reuters
The aroma of frying onions from the Britannia and Co. restaurant might not penetrate the office of India's central bank governor Raghuram Rajan a block away, but like the eatery's customers, he can't escape the soaring price of the pungent vegetable.

The price of onions has added to Rajan's already full plate as the new head of the Reserve Bank of India (RBI) wrestles over how to help stabilize the rupee currency and tackle inflation without further dampening economic growth.

Reserve Bank of India’s (RBI) newly appointed governor Raghuram Rajan takes charge at the RBI headquarters in Mumbai, India, Sept. 4, 2013.Reserve Bank of India’s (RBI) newly appointed governor Raghuram Rajan takes charge at the RBI headquarters in Mumbai, India, Sept. 4, 2013.
x
Reserve Bank of India’s (RBI) newly appointed governor Raghuram Rajan takes charge at the RBI headquarters in Mumbai, India, Sept. 4, 2013.
Reserve Bank of India’s (RBI) newly appointed governor Raghuram Rajan takes charge at the RBI headquarters in Mumbai, India, Sept. 4, 2013.
A former IMF chief economist, Rajan took over at the RBI on Sept. 4 in the middle of India's worst economic crisis in 20 years. He will announce his first monetary policy review on Friday.

The U.S. Federal Reserve's surprise decision on Wednesday not to wind down its massive monetary stimulus just yet helped the rupee to a one-month high on Thursday, so inflation may have now moved up on his list of priorities.

In August, the cost of onions was 245 percent higher than a year earlier, while other vegetables shot up 77 percent, driving headline inflation to a six-month high. Onion prices have risen even further in September, prompting the government to take steps to limit exports.

Eaten raw as a side dish, or blended into a vast array of curries, onions play a prominent role in Indian cuisine and public anger rises quickly whenever prices spike.

Price pinch

In Britannia, the pinch is being felt by customers who include employees of the Reserve Bank, who drop by to lunch on steaming plates of its famous Parsi berry pulav rice.

“Instead of one person eating one plate, two people are splitting. And three people are dividing two plates,” said Boman Kohinoor, the 91-year-old co-owner of the restaurant.

Much remains unchanged in Britannia, which was founded in 1923, 12 years before India's central bank was set up. But the prices keep on rising.

The restaurant raised prices on its menu by between 30 and 50 rupees ($0.50-$0.80) earlier this year - a fragrant plate of rice-based chicken biryani now costs 350 rupees - and Kohinoor said the soaring costs of ingredients may force him to hike prices again by April.

With overall food prices up an annual 18 percent last month, Kohinoor's new neighbor at the Reserve Bank will probably be careful not to stoke inflation in other areas, despite calls from industry to cut interest rates and lower borrowing costs.

But in reality there is little Rajan can do to prevent the volatility.

Erratic prices for perishable goods are routine in India, partly because the majority of farms depend on the variable monsoon for rains. This year, a drought followed by too-heavy rain affected supplies.

Consumers are also hostage to inadequate storage facilities and transport bottlenecks - that together cause up to 30 percent of fresh produce to rot before it reaches the market - and a distribution network in which many layers of middlemen take cuts, forcing prices higher.

Whatever the causes, onion prices have political consequences in India - in the 1998 New Delhi elections the Bharatiya Janata Party (BJP) was booted out of office by the Congress party after prices touched 60 rupees per kilo.

The significance will not be lost on Prime Minister Manmohan Singh, whose Congress party faces national elections by May. The Congress party local government in Delhi and its rivals the BJP have been trying to out-do each other selling the vegetable at below market rates from the back of trucks in the city.

Discount site Groupon offered onions at 9 rupees per kilogram earlier this month, a discount of as much as 90 percent, advertising the deal with the image of an onion in a jewelry case. Demand was so high its site crashed.

But Rajan, who had a lucky break on Wednesday when the U.S. Fed decided not to reduce the flow of cheap dollars that help drive investment flows to emerging markets such as India, might soon be in for another reprieve.

Strong rains in the current monsoon season mean some are predicting a bumper onion crop this year - and farmers are forecasting prices will drop sharply over the next few weeks.

“Onion prices to ease in 2-3 weeks as fresh output arrives from Maharashtra, other states,” Agriculture Minister Sharad Pawar posted on on Twitter on Thursday.

You May Like

Pundits Split Over Long-Term US Role in Afghanistan

Security pact remains condition for American presence beyond 2014; deadline criticized More

US Eyes Islamic State Threat

Officials warn that IS could pose a threat to US homeland More

Video Ukraine: Captured Troops Proof of Russian Role in Separatist Fight

Moscow says Russian troops crossed into Ukrainian territory by mistake More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Scientists Unlock Mystery of Bird Flocksi
X
George Putic
August 25, 2014 4:00 PM
How can flocks of birds, schools of fish or herds of antelope suddenly change direction -- all the individuals adjusting their movement in concert, at seemingly the same time? British researchers now have some insights into this behavior, which has puzzled scientists for a long time. VOA's George Putic has more.
Video

Video Scientists Unlock Mystery of Bird Flocks

How can flocks of birds, schools of fish or herds of antelope suddenly change direction -- all the individuals adjusting their movement in concert, at seemingly the same time? British researchers now have some insights into this behavior, which has puzzled scientists for a long time. VOA's George Putic has more.
Video

Video Ukraine: Captured Troops Proof of Russian Role in Separatist Fight

Ukrainian officials say they have captured Russian soldiers on Ukrainian territory -- the latest accusation of Moscow's involvement in the conflict in eastern Ukraine. VOA's Gabe Joselow reports from the Ukrainian side of the battle, where soldiers are convinced of Russia's role.
Video

Video Rubber May Soon Come From Dandelions

Synthetic rubber has been around for more than a century, but quality tires for cars, trucks and aircraft still need up to 40 percent or more natural rubber content. As the source of natural rubber, the rubber tree, is prone to disease and can be affected by bad weather. So scientists are looking for replacements. And as VOA’s George Putic reports, they may have found one in a ubiquitous weed.
Video

Video Jewish Life in Argentina Reflected in Yiddish Tango

Jewish people from across Europe and Russia have been immigrating to Argentina for hundreds of years. They brought with them dance music that were eventually mixed with Argentine tango. The result is Yiddish tango -- a fusion of melodies and cultural experiences that is still evolving today. Elizabeth Lee reports from the Skirball Cultural Center in Los Angeles, where one band is bringing Yiddish tango to an American audience.
Video

Video Peace Returns to Ferguson as Community Tries to Heal

Thousands of people nationwide are expected to attend funeral services Monday in the U.S. Midwestern city of St. Louis, Missouri, for Michael Brown, the unarmed African-American teenager who was fatally shot by a white police officer August 9 in the St. Louis suburb of Ferguson. The shooting touched off days of violent demonstrations there, resulting in more than 100 arrests. VOA's Chris Simkins reports from Ferguson where the community is trying to move on after weeks of racial tension.
Video

Video Meeting in Minsk May Hinge on Putin Story

The presidents of Russia and Ukraine are expected to meet face-to-face Tuesday in Minsk, along with European leaders, for talks on the situation in Ukraine. Political analysts say the much welcomed dialogue could help bring an end to months of deadly clashes between pro-Russia separatists and Ukrainian forces in the country's southeast. But much depends on the actions of one man, Russian President Vladimir Putin. VOA's Daniel Schearf reports from Moscow.
Video

Video Artists Shun Russia's Profanity Law

Russia in July enacted a law threatening fines for publicly displayed profanity in media, films, literature, music and theater. The restriction, the toughest since the Soviet era, aims to protect the Russian language and culture and has been welcomed by those who say cursing is getting out of control. But many artists reject the move as a patronizing and ineffective act of censorship in line with a string of conservative morality laws. VOA's Daniel Schearf reports from Moscow.
Video

Video British Fighters on Frontline of ISIS Information War

Security services are racing to identify the Islamic State militant who beheaded U.S. journalist James Foley in Syria. The murderer spoke English on camera with a British accent. It’s estimated that several hundred British citizens are fighting for the Islamic State, also called ISIL or ISIS, alongside thousands of other foreign jihadists. Henry Ridgwell reports for VOA from the center of the investigation in London.

AppleAndroid

World Currencies

EUR
USD
0.7537
JPY
USD
103.79
GBP
USD
0.6032
CAD
USD
1.0957
INR
USD
60.522

Rates may not be current.