Vegetable Prices May Remain Unpalatably High For India’s MPC
Sacks of potatoes sit in a field at a farm on the outskirts of Meerut, Uttar Pradesh, India, on April 14, 2014. (Photographer: Prashanth Vishwanathan/Bloomberg)

Vegetable Prices May Remain Unpalatably High For India’s MPC

Indians continue to pay more for commonly used vegetables and pulses, presenting a dilemma for India’s Monetary Policy Committee, which has committed to keeping interest rates on hold into next year.

At the Monetary Policy Committee’s last resolution on Oct. 9, the Reserve Bank of India said it expects inflation to ease to between 5.4-4.5% in the second half of the financial year. “Kharif sowing portends well for food prices”, said RBI, adding that “pressures on prices of key vegetables like tomatoes, onions and potatoes should also ebb by the October-December quarter with kharif arrivals.”

Inflation in potatoes soared to 101.98% in September, while prices of tomatoes rose by 54.58%. Prices of onions, however, fell 12.82% in September over a year ago.

These trends have persisted in October and in November too.

  • Wholesale prices of potatoes continued to climb in November, rising by 103.6% on an annual basis, to Rs 3,179 per quintal.
  • Onion prices eased, falling by 6.4% in November, to Rs 4,363 per quintal.
  • Tomato prices rose but at a slower pace of 6.4% in November, to Rs 2,817 per quintal.

In the first week of November, daily prices of essential food items rose by 2.5% month-on-month, according to data published by the Department of Consumer Affairs, said Kaushik Das, the chief India economist at Deutsche Bank. This was after a rise of 3.9% and 3.7% in October and September respectively.

The increase has been led primarily by onion and potato prices within vegetables and pulses among other food items, Das said. If food prices, particularly vegetable prices remain high through November-December, in line with last year’s trend, the damage will be done, and it will put RBI and the MPC in a very uncomfortable position, Das added.

Shubhada Rao, the founder at QuantEco Research, also said that unlike the logistical disruptions in previous months, weather-related disruptions now have also pushed up prices. As such, the key commodities that sometimes tend to exhibit synchronicity in price movements have also been affected.

Siraj Hussain, a visiting senior fellow at ICRIER, said that while the fresh crop for potatoes will reach markets only in January, onions will start to arrive now, helping ease prices further. The ban on exports of onions too will help, he added. However, conversations with mandis in some states do indicate that the government may also have overestimated the production this year, Hussain added.

Along with other commodities, market arrivals of potatoes, onions and tomatoes saw a sharp decline in October and early trends indicate that supply may remain low in November. For major states, market arrivals of potatoes continued to show a steep contraction, while onion arrivals inched towards normalcy, shows data compiled by BloombergQuint.

Supply remains inadequate, said Arindam Das, joint director at the Foundation for Agrarian Studies. Kharif harvesting is either just over or is still ongoing in some parts, he said, adding that, in coastal India for instance, it will go on until the year’s end.

For now, the central bank, along with private economists, continue to believe that the problem is transient.

Beyond October, our forecast factors in moderation in headline CPI inflation, led by an overall disinflation in food prices, particularly related to vegetables such as onions and potatoes, said Das.

Even if vegetable prices ease, prices of pulses and oilseeds are likely to remain firm due to elevated import duties, the central bank had stated in its outlook. The real challenge may then be the low stocks of other key food items such as pulses, Hussain said. The government seems unaware of the private stocks held by Warehousing Development and Regulatory Authority and these stocks may likely be lower than expected, Hussain said.

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