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India Seeks to Cool Onion Prices as Food Inflation Quickens to 6-Week High

India’s food inflation accelerated to a six-week high, adding pressure on authorities to curb a jump in onion prices that has forced the nation to halt exports of the staple this week and toppled governments in the past.

An index measuring wholesale prices of agricultural products including lentils, rice and vegetables compiled by the commerce ministry rose 12.13 percent in the week ended Dec. 11 from a year earlier, a trade ministry report showed in New Delhi today. The index gained 9.46 percent the previous week.

Opposition parties have criticized Prime Minister Manmohan Singh’s government for failing to check rising prices and the central bank has raised interest rates to contain inflation that’s triggered labor strikes and public protests. The Hindu nationalist Bharatiya Janata Party was defeated in local elections in 1998 after a surge in onion prices.

“Everyone, irrespective of economic condition, would have to use it on a day-to-day basis and it is a very sensitive item both from an economic point of view and political point of view,” Siddhartha Sanyal, chief India economist at Barclays Bank Plc’s investment banking division, told Bloomberg Television in an interview today. “They cannot ignore it.”

India will take steps to cool food inflation and onion prices will ease soon, Cabinet Secretary K.M. Chandrasekhar said today. The world’s second-biggest onion grower said yesterday it would buy the crop from abroad and banned exports indefinitely of all varieties of the vegetable, a key ingredient in the country’s fiery curries and biryani dishes.

Stocks Fall

The Bombay Stock Exchange’s Sensitive Index fell for a second day in Mumbai. The yield on India’s 10-year bond rose 3 basis points to 7.97 percent.

Onion prices jumped 33.5 percent from a year earlier, the wholesale food report showed. Retail prices of onions have risen from as little as 10 rupees ($0.22) a kilogram in June to as much as 85 rupees, the Business Standard newspaper said today.

The country reduced the import duty for onions to zero and ordered state-owned trading companies to import the vegetable, trade secretary Rahul Khullar said yesterday. The government has banned onion exports indefinitely.

India is importing the crop from neighboring Pakistan in a bid to contain prices, the Press Trust of India said yesterday. The government, in an advertisement in the Indian Express newspaper today, said that prices are likely to decline.

Election Loss

A fivefold increase in the price of onions 12 years ago drove inflation to almost 9 percent and contributed to the defeat of the now main opposition Bharatiya Janata Party in provincial elections. The BJP lost elections in Madhya Pradesh, Delhi and Rajasthan as onion prices surged as high as 60 rupees a kilogram.

“Onions are politically sensitive as parties have lost elections over onion prices in the past,” said N. Bhaskara Rao, chairman of the Centre for Media Studies in New Delhi. “This price rise is a classic case of management failure of the agricultural produce so important for Indians.”

The government has asked “state companies to sell onions at 40 rupees a kilogram,” junior food minister K.V. Thomas told reporters in New Delhi today. “We have asked state governments to be more vigilant as there is a huge difference between the wholesale and retail prices” of onions.

Food prices aren’t dropping enough and an “upside risk” to inflation still persists, Reserve Bank of India Deputy Governor Subir Gokarn told reporters yesterday. The central bank predicts the benchmark wholesale-price inflation rate may slow to 5.5 percent by March 31 from 7.48 percent in November.

Governor Duvvuri Subbarao may resume monetary tightening in January after keeping borrowing costs on hold at a Dec. 16 policy meeting, said economists including Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. The central bank has lifted interest rates six times in 2010.

The wholesale food-price index reading for the week ended Dec. 11 climbed 2.26 percent to 185.8 from a week earlier.

To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

Enlarge image India's Prime Minister Manmohan Singh

India's Prime Minister Manmohan Singh

India's Prime Minister Manmohan Singh

Jock Fistick/Bloomberg

Manmohan Singh, India's prime minister.

Manmohan Singh, India's prime minister. Photographer: Jock Fistick/Bloomberg

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