Onion thieves show that India’s inflation war is just beginning

Onion prices have almost doubled since July even as CPI slows; RBI may reduce rate once more though there is no scope for 'aggressive' cuts

Sandrine Rastello, Adi Narayan
Published4 Sep 2015, 09:02 AM IST
A hundred kilos of onions cost an average Rs3,800 in the main Lasalgaon wholesale market in August, about double from a month earlier. Supplies dropped by about 70% in that time, in part due to unseasonal rains. Photo: Bloomberg<br />
A hundred kilos of onions cost an average Rs3,800 in the main Lasalgaon wholesale market in August, about double from a month earlier. Supplies dropped by about 70% in that time, in part due to unseasonal rains. Photo: Bloomberg

Mumbai: Those who say India’s inflation woes are under control forgot to tell Mumbai’s onion thieves.

Prices of the vegetable—a staple in Indian diets—have almost doubled since July, leading to a series of widely reported heists in recent weeks. One victim, Anand Naik, had 750 kilos of onions snatched from underneath a tarp by his roadside stall in Mumbai last month.

“It’s clearly because of the price surge,” said Naik, 57, pointing to the 50-kg jute sacks behind him. “Otherwise who is going to try to steal these big bags?”

The rising likelihood of a rate cut in the coming months would do nothing to lower household inflation expectations, which Reserve Bank of India (RBI) governor Raghuram Rajan flagged as a crucial part of his long-term fight to control prices. Instilling expectations of lower prices among the population would help contain wage demands and allow interest rates to fall at a faster pace.

“The biggest issue which people tend to overlook is the RBI’s game plan to actually bring inflation down to 4% over the next couple of years,” said Rajeev Malik, a Singapore- based senior economist with CLSA Asia-Pacific Markets. While there may be room for one more reduction in borrowing costs, he said, “there’s no scope for aggressive rate cuts.”

Years of 9% plus price growth have left their mark on Indians, Rajan said last month.

“If they find the price of vegetables staying low, they find the price of milk staying low, then they say ‘a-ha, there is a change,’” Rajan said in a 28 August interview with Bloomberg TV.

Households expectations of where inflation will be in a year hit more than 10% in June from as low as 8.9% in December, according to a central bank survey published on 4 August. That’s even as CPI stayed below Rajan’s January target of 6% for 10 straight months.

Rajan wants all indicators to eventually converge around his inflation target, which will fall to 4% in the coming years. To get there, he needs to eliminate large swings in the price of food, which accounts for almost half of the inflation basket, according to Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd.

“It doesn’t matter if you’ve got low food inflation for nine months and three months it spikes, because that’s not going to help expectations,” he said. “You need that kind of inflation volatility to come down as well.”

Onions are a key ingredient in many Indian dishes, making prices a particularly sensitive political issue. A hundred kilos of onions cost an average 3,800 in the main Lasalgaon wholesale market in August, about double from a month earlier. Supplies dropped by about 70% in that time, in part due to unseasonal rains.

“Onion is used by everyone, so it does help shape inflationary expectations,” said Dharmakirti Joshi, an economist at Crisil Ltd in Mumbai.

With elections coming up in key states, Prime Minister Narendra Modi’s government has rushed to boost imports, raise minimum export prices and crack down on hoarders who fuel speculation and exacerbate price moves.

In Mumbai, Naik estimates that it will take him six months to recover from the 38,000. To prevent further thefts, he asked his nephew to sleep on the street each night beside sacks of onions.

“There is not much else we can do,” he said. Bloomberg

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.

MoreLess
First Published:4 Sep 2015, 09:02 AM IST
HomePoliticsPolicyOnion thieves show that India&#8217;s inflation war is just beginning

Get Instant Loan up to ₹10 Lakh!

  • Employment Type

    Most Active Stocks

    Bharat Electronics

    312.60
    03:59 PM | 22 JUL 2024
    6.3 (2.06%)

    Zee Entertainment Enterprises

    134.60
    03:59 PM | 22 JUL 2024
    -2.95 (-2.14%)

    Tata Steel

    160.35
    03:57 PM | 22 JUL 2024
    2.6 (1.65%)

    Wipro

    505.75
    03:59 PM | 22 JUL 2024
    -51.5 (-9.24%)
    More Active Stocks

    Market Snapshot

    • Top Gainers
    • Top Losers
    • 52 Week High

    Rashtriya Chemicals & Fertil

    235.05
    03:53 PM | 22 JUL 2024
    21.1 (9.86%)

    NBCC India

    184.85
    03:52 PM | 22 JUL 2024
    13.05 (7.6%)

    Indian Hotels Company

    620.20
    03:54 PM | 22 JUL 2024
    42.95 (7.44%)

    Chalet Hotels

    820.00
    03:29 PM | 22 JUL 2024
    55.9 (7.32%)
    More from Top Gainers

    Recommended For You

      More Recommendations

      Gold Prices

      • 24K
      • 22K
      Bangalore
      75,510.00293.00
      Chennai
      75,657.000.00
      Delhi
      75,217.00732.00
      Kolkata
      75,144.00659.00

      Fuel Price

      • Petrol
      • Diesel
      Bangalore
      102.86/L0.00
      Chennai
      100.98/L0.23
      Kolkata
      104.95/L0.00
      New Delhi
      94.72/L0.00
      OPEN IN APP
      HomeMarketsPremiumInstant LoanBudget