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.
TEXT SIZE - +
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

Multimedia Relatives of South Korean Ferry Victims Fire at Authorities

36 people are confirmed dead, but some 266 remain trapped on board More

War Legacy Haunts Vietnam, US Relations

$84 million project aims to clean up soil contaminated by Agent Orange More

Wikipedia Proves Useful for Tracking Flu

Technique gave better results than Center for Disease Control (CDC) and Google’s Flu Trends More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Ukraine, Russia, United in Faith, Divided in Politicsi
X
Michael Eckels
April 19, 2014
There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Ukraine, Russia, United in Faith, Divided in Politics

There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
AppleAndroid

World Currencies

EUR
USD
0.7217
JPY
USD
102.17
GBP
USD
0.5949
CAD
USD
1.1009
INR
USD
60.326

Rates may not be current.