The surge in onion prices and its potential implications on the Indian government have taken center stage, surpassing even the recent tomato price spike by 700%. Prime Minister Narendra Modi’s administration has now initiated fresh measures to control food inflation prior to crucial upcoming elections. With onions being an integral part of Indian cuisine and consumer demand being relatively inflexible, the government faces a substantial challenge in tackling this issue effectively.
In response to the soaring prices, India has implemented a 40% export tax on onions and plans to sell them domestically at subsidized rates. This move reflects the significance of onions, tomatoes, and potatoes as staple crops in Indian diets, capable of influencing voters’ opinions and electoral outcomes. Past instances of price hikes resulting from crop losses have already affected the fate of ruling parties, making the government’s proactive response understandable.
Although tomato prices have recently decreased, the steady rise in onion prices has put the authorities on high alert. Concerns surrounding escalating costs of essential agricultural commodities, such as wheat and rice due to adverse weather conditions, have compounded the urgency for swift action. Retail inflation has reached a 15-month high, emphasizing the magnitude of the challenge Prime Minister Modi faces in his bid for a third term in the upcoming national elections.
Recognizing the potential risks, the government has imposed restrictions on the export of wheat, rice, and sugar. The 40% tariff on wheat imports may also be reconsidered. Furthermore, the government is actively selling tomatoes and grain in the open market while curbing excess stockpiling of certain crops. These measures indicate a preemption of circumstances that may entail elevated food prices in the coming months.
The threat of El Niño-induced poor weather conditions looms over onion crops in Maharashtra, the largest onion-producing state. Already experiencing below-average precipitation, Maharashtra plays a crucial role in satisfying India’s onion demand. With monsoon rains currently 7% below normal, food prices have surged with wheat rising by 12% in Delhi, rice costing 22% more, tomatoes soaring by 80%, and onions witnessing a 32% increase in prices.
Amar Kisan Jagtap, a farmer based in Maharashtra, highlights rising costs and insufficient remunerative prices as primary challenges faced by onion growers. Consequently, Jagtap intends to reduce onion crop cultivation during the winter season given the anticipation of further government restrictions leading up to state elections and the general election in 2024. The recent imposition of the export levy has triggered protests by onion traders in Nashik, Maharashtra, where substantial onion supplies for various regions are at risk.
The Modi government’s decision to take swift action in response to rising onion prices showcases its awareness of the potential impact this may have on upcoming elections. While recent price spikes are largely driven by perishable and seasonal vegetables, attention should remain focused on determining effective strategies for the more extensively consumed and essential commodities like rice and wheat. Facilitating stable food prices remains imperative for India’s economic stability and the well-being of its citizens.
Market Capital Research 