Aug. 24 (Bloomberg) -- India is preparing to import onions for the first time in two years as a surge in prices threatens to trigger a backlash against Prime Minister Manmohan Singh before next year’s elections.
Prices of the vegetable have almost quadrupled in three months in New Delhi as the government struggles to tackle the highest inflation among the biggest emerging markets. State-run trading company PEC Ltd. this week sought overseas suppliers to deliver as much as 300,000 tons of onions, while National Agricultural Cooperative Marketing Federation of India Ltd. said the country may buy from China, Iran, Egypt and Pakistan.
“The government has to address this issue urgently and imports are the only solution in the short term,” said Madan Sabnavis, chief economist at rating company Credit Analysis and Research Ltd. in Mumbai. “Onions are a nasty thing politically and parties have lost elections in the past” over this issue, he said.
With the rupee’s plunge threatening to fuel inflation in a country where a gauge of gains in consumer prices has averaged 10 percent, a surge in the cost of onions is the last thing Singh needs before he faces polls by May. Already embattled in the face of decade-low economic growth and twin budget and current-account deficits, his government is counting on the inbound shipments to address shortages caused by droughts, hoarding and distribution bottlenecks.
Won and Lost
Politicians have won and lost elections in the South Asian country over the cost of the key ingredient used to make spicy masala that goes into dishes from curries to biriyani.
Former Prime Minister Indira Gandhi, defeated after she suspended democracy from 1975 to 1977, swept back into power in 1980 by turning the price of onions into a populist rallying cry. Waving garlands of onions at political gatherings, she assailed the incumbent government for its failure to control prices.
Inflation of more than 6 percent between 1994 and 1996 helped oust Prime Minister P.V. Narasimha Rao. His Congress party-led government lost to the BJP, which was voted out in May 2004 after prices rose in eight of the 12 months that preceded the polls.
“The price of onions could become a political game changer,” said Satish Misra, an analyst at the Observer Research Foundation, a policy group based in New Delhi. “The government needs to check the prices of essential commodities, particularly onions, otherwise it could really harm its chances of winning the next elections.”
Food inflation accelerated to 11.91 percent last month, the highest rate since January, the commerce ministry said last week. Onion prices in Delhi surged to 60 rupees (93 cents) a kilogram (2.2 pounds) from 16 rupees three months ago. Potatoes have rocketed to 20 rupees a kilogram from 12 rupees in six months, while tomatoes quadrupled to 56 rupees in July compared with January, according to data from the ministry of consumer affairs.
Arvind Kumar Singh, who earns $5 a day as a carpenter at a metro project in New Delhi, says the wage is too little to feed his family of five back home in Bihar. Now he can’t even afford onions, a staple in Indian food.
“Everything is expensive here, not only onions,” said Singh, 32, who shares a bedroom with six other men in the nation’s capital. “Somehow or the other, we are managing. This is not a good life that I aspire for.”
The bulbous flavonoid-rich root may be the only source of nutrition for the poor who use it as a raw side dish with flattened bread in many of the northern states from Rajasthan to Bihar. Of the 1.2 billion people in the country, about two-thirds live on less than $2 a day, according to the World Bank.
About 40 percent of the respondents in an opinion poll published by the CNN-IBN television channel and the Hindu newspaper last month said that inflation was the biggest worry, three times higher than the next answer.
The main opposition Bharatiya Janata Party has seized on the issue and is attacking the ruling Congress party for failing to deliver an effective government. It has opened stalls selling onions at a third of the market price and gave them out as gifts on a national holiday earlier this week.
“Escalating onion prices will only add fuel to the fire,” said Arun Singh, an economist at Dun & Bradstreet Information Services India Pvt. in Mumbai. “It’s a very challenging situation when the rupee’s decline is adding to already high inflation. High food costs, if uncontrolled, will have a significant toll on the economy.”
The $1.8 trillion economy expanded 5 percent in the year to March 31, the slowest pace since 2003, while the current-account deficit widened to a record 4.8 percent of gross domestic product. The rupee has dropped 15 percent this year and touched an all-time low of 65.56 yesterday.
To stem the currency’s slide, the Reserve Bank of India unexpectedly reversed a bias for policy easing starting mid-July by tightening cash availability in the financial system, causing benchmark 10-year bond yields to reach a 12-year high this week.
The next elections may throw a fractured mandate, prolonging a political gridlock, surveys show. Neither of India’s main alliances would win more than 30 percent of seats in parliament if voting were to be held now, according to an opinion poll released by Times Now television channel and C-Voter polling agency at the end of last month. No margin of error was given.
Onion prices will stay high until the end of next month before harvesting of the monsoon-sown crop starts in October in the western Maharashtra state, the nation’s biggest grower, said C.B. Holkar, a director at NAFED.
India is the world’s second-largest producer of onions after China. Yet, it has the third-lowest yield per hectare among the 20 biggest producers, according to the Bangalore-based Institute of Social and Economic Change. The report says that collusion among traders and the poor state of India’s infrastructure act to push up prices.
About 40 percent of India’s fruit and vegetables rot before they can be sold because of a lack of cold storage facilities and poor transport infrastructure, according to the government.
The price of onions has risen because of a fall in production and because the area under cultivation has been reduced. India’s onion production was 16.65 million tons in 2012-13, down 4.8 percent, from 17.5 million tons a year earlier, according to data from the farm ministry.
In a sign of the growing value of onions, robbers hijacked a truck carrying 40 tons of the vegetable this week traveling between Delhi and Jaipur, according to the Indian Express newspaper.
In the southern city of Chennai, prices have tripled to 75 rupees a kilogram. Devaki, 40, who goes by only one name and earns $85 a month as a garbage collector, says her family of five uses only two onions per meal.
Singh, the laborer working on the Delhi metro, says he has stopped eating onions altogether because they are so expensive. Instead he is buying cabbage as a cheaper alternative because he needs to send some savings home to support his parents, wife and two children, he said.
“A poor man like me has no voice,” said Singh. “The government isn’t caring enough about us.”
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