Centre builds 200k tonne onion buffer to guard against inflation
NEW DELHI: The Union government has built a record reserve of 200,000 tonne of onions to deal with potential spikes in onion prices during the coming lean season. Such seasonal price spirals could impact the wider economy and households alike, an official familiar with the matter said.
Onion prices had doubled in October 2020, a result of unseasonal rainfall during March and April that year, shriveling crops. Retail prices first rose to about ₹70 per kg in cities such as Mumbai and Delhi from usual rates of between ₹35 and ₹40, and then spiralled to ₹100 per kg. In Delhi, the average retail price for a common variety of onion over the past week has been ₹40, indicating normal supplies.
Prices of some food items, where seasonality plays a big role, tend to be volatile. Onion is one of them. Its rates often stoke food inflation and knock the monthly budgets of consumers, poor or rich, because the vegetable is a base ingredient of most Indian dishes.
Past data shows onion prices usually tend to rise during September because the month marks the beginning of a nearly threemonth lean season, when stocks from previous crops deplete. Fresh harvests usually arrive in markets in the winter.
Retail prices, as measured by the Consumer Price Index, rose 6.25% in June, slightly lower than a 6.3% rise in May, but driven by higher food and fuel costs, latest official data show. The retail inflation rate is above the Reserve Bank’s target of 4% (+/-2). Inflation in the food and beverages category stood at 5.58%, compared to 5.24% in May.
Price rise is a key determinant of monetary policies. Moderate inflation helps the Reserve Bank to keep interest rates low to spur economic activity, which has been hit by the pandemic. The next meeting of the monetary policy committee or MPC of RBI is on Friday, August 6.
“The buffer size (of onions) has been enhanced from 5,137MT in 2017-18 to 100,000MT in 2020-21, which has been further enhanced to 200,000 MT in 2021-22 to ensure a more effective intervention to control prices,” a government document reviewed by HT said.
The official cited above said that the government is “monitoring prices of all essential commodities as always”. If prices rise, the government hopes to step in by releasing onions “as and when needed” from its own reserves to keep rates stable, the official added.