Skyrocketing Onion Prices, Explained

To the dismay of the country, the great Indian onion crisis is back again with a vengeance. Onion is not just a bulb in India; it’s a bomb that can topple governments. In 1998, the BJP lost the election in Delhi and one of the reasons cited was high inflation and soaring onion prices. At that time Late Ms Sushma Swaraj, who was the Chief Minister of Delhi, had to give way to Late Ms Sheila Dixit as Chief Minister who served Delhi until 2013.

And it was the dreaded onion again in 2013 that led to Sheila Dixit’s and Congress’ exit from the Delhi government after 15 years. This time again Delhi’s voters displayed their “onion-anger” and ousted the Congress party from Delhi, giving the Aam Aadmi Party a record-breaking victory.

The Government knows this and is trying to do its best to avoid a similar situation as Jharkhand and Delhi goes to polls in a space of 2 months. The Government knows that voters, especially in Delhi, can be merciless when it comes to high onion prices.

But why are onion prices skyrocketing? What is the central government doing to tackle this issue? Here’s an explainer.

Current onion prices at a glimpse

Onion prices have increased by as much as 400% since March 2019. At this moment, in December 2019, onions are selling at a national average price of Rs. 100 per kg.

Lasalgaon in Maharashtra, which is the largest onion market in the country, sets the trend for onion prices across the nation. Wholesale prices at this market have averaged the highest since 2011, while supplies have remained the lowest compared to the same period in previous years.

Lasalgaon Market Onion Price Trends

Why are onion prices soaring?

Firstly, whether you are a vegetarian or a non-vegetarian, onions are an indispensable part of Indian dishes. Most Indian kitchens, whether at home or restaurants, are unable to function without this ubiquitous vegetable. Therefore, even a little delay in meeting the daily supply can send prices soaring.

One of the primary reasons for soaring onion prices this year is the heavy damage of harvested onions caused by severe monsoon rains in the major onion-producing states of Maharashtra, Karnataka and Madhya Pradesh. While late monsoon delayed onion harvesting earlier in 2019, the heavy rainfall damaged a lot of harvested onions leading to the shortage.

Unseasonal and heavy rainfall led to the damage of ready-to-harvest crop in Maharashtra, Madhya Pradesh, Rajasthan and Gujarat almost simultaneously. Since Maharashtra accounts for 35% of the country’s total onion production, a dip in production from the state has also been a major reason for the shortage.

Steps taken by the Government 

There are a lot of things that goes behind the scenes to bring that humble onion to your plate. Even as we complain about soaring onion prices affecting our household budget, there are thousands of onion farmers who have suffered huge losses but are not getting the right prices for their produce.

The government banned the export of onion in September and took a step to prevent hoarding by putting a limit on the maximum amount of onions they could hold. The maximum onion they could stock was determined as 500 quintals for wholesalers and 100 quintals for wholesalers. The government has also decided to import 1 lakh tonnes of onions from Egypt and Turkey to meet the onion shortage in the country.

However, according to the National Horticulture Development Board (NHDB) database, the country needs at least 160,000 metric tonnes of onions to fulfil the shortage. Even the 1 lakh tonne that the government has decided to import, cannot be imported in one go and it will come in batches. The first batch of 11,000 MT will arrive in the last week of December 2019 and the 4,000 MT from Turkey in mid-January 2020.

Until then households have to bear the brunt of skyrocketing onion prices on their household budget. It also remains to be seen when and how onion prices are going to come down so that households can breathe a sigh of relief.

Apart from rising onion prices and steadily increasing inflation rate, the country is showing all the signs of an economic slowdown and there is a sense of uncertainty everywhere. Rising inflation can erode your savings and returns on investments. Therefore, it’s important to invest in the right instruments where you can capitalise on volatility and spread your risks by diversifying your investments. At Bajaj Markets you can invest in mutual funds, ULIPs and FDs with high credit ratings or park your wealth in the safety of digital gold.

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