Onion Prices Dent Indian Citizens' Pockets, Rises To Rs 60-70/kg; When Will Prices Cool Down?

Onion prices are back to sky-high levels in many regions of India, especially on the streets of Delhi-NCR, the prices reached as high as to Rs 70/kg on Sunday. Prices of onion have sprinted up since the start of this month, creating a dent in citizens' pockets. But that not all, the prices of onions once again bring back the fear of inflationary pressure in October which could extend the prolonged pause in repo rates. It is expected that onions are going to be even more costlier in November and December.

As per the government data, the maximum price of onion has advanced to approximately Rs 70 per kilogram in Delhi. On the previous day, the price was at Rs 68 per kg. Not just that retail prices have gone up Rs 60/kg in places like Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad, which are higher by Rs 20 from the price level of Rs 40 a kilo in the previous fortnight.

An onion vendor at Ghazipur told ANI said, "The inflow of the onion is low resulting in high rates. Today the rates are Rs. 350 (per 5 Kg). Yesterday, it was Rs. 300. It was Rs. 200 before that. A week ago, rates were Rs. 200, Rs. 160 or Rs. 250 etc. The rates have gone up in the last week. The rates have risen due to a shortage in supply..."

Prices have jumped in other regions like Karnataka and Maharashtra. Also, onions are being sold at Rs 65-70/kg by the Agricultural Produce Market Committee (APMC) in Yeshwantpur, Bengaluru.

Data from the Department of Consumer Affairs showed that the all-India average retail price of onion was at Rs 43.27/kg as of October 27, 2023, which is up by nearly 29% from the average retail price of Rs 33.57/kg a month back.

The average monthly retail price of Onion in Delhi stood at Rs 40.44/kg in October 2023, up by 31% from Rs 30.9/kg in January month of the current year. Not just that, the lowest average retail price of onion in Delhi was last seen in March 2023 where it stood at Rs 24.84/kg. From the March 2023 level, prices are currently up 62.80% or doubled.

Last week, this vegetable was being sold between Rs 30-50 a kilo.

In Maharashtra, as well, onion prices have seen a significant jump. The average monthly retail price of onion was Rs 33.99/kg in October 2023, up by 29.5% from the average monthly price of Rs 26.25/kg. The lowest price level was seen in May 2023 at Rs 17.54/kg, and from this level, onion has gotten costlier by 93.8% to date --- this would be a huge spike in less than six months.

Furthermore, the wholesale average prices of onions in all-India climbed by 34% to Rs 3,476.21 per quintal as of October 27th compared to Rs 2,338.65 a month back.

The reason for supply shortage can be due to drought and low crop yields which is highly related to the monsoon season between June to September 2023.

Earlier, in its RRR report for October 2023, CRISIL Ratings said that "Onion prices rose ~12% on month in September and are expected to remain firm amid the expected lower output in Kharif 2023."

Meanwhile, Consumer Affairs Secretary Rohit Kumar Singh told PTI, "We have been offloading buffer onions since mid-August and we are stepping up the retail sale in order to check further rise in prices and provide relief to the consumers."

In the bulletin of October 2023, RBI also said, that amongst key vegetables, tomato prices continued to correct in October. Onion prices registered a sequential uptick, although at a lower rate. Potato prices remained largely steady.

Many reports are claiming that onion prices are likely to remain high in November and a couple of days in December. Currently, the prices are floating between Rs 70 to Rs 80 a kilo and are expected to climb to Rs 100 a kilo anytime next month. The prices are broadly expected to ease in the last month of the current year.

In the latest RBI policy, the central bank said that the near-term inflation outlook is expected to improve on the back of vegetable price correction and the recent reduction in LPG prices. The future trajectory will be conditioned by several factors like lower area sown under pulses, dip in reservoir levels, El Niño conditions and volatile global energy and food prices. According to the Reserve Bank's enterprise surveys, manufacturing firms expect higher input cost pressures but marginally lower growth in selling prices in Q3 compared to the previous quarter. Services and infrastructure firms expect a moderation in the growth of input costs and selling prices.

Taking into account these factors, RBI estimates CPI inflation at 5.4 per cent for 2023-24, with Q2 at 6.4 per cent, Q3 at 5.6 per cent and Q4 at 5.2 per cent, with risks evenly balanced. CPI inflation for Q1:2024-25 is projected at 5.2 per cent.

RBI's views on the latest surge in onion prices during the December 2023 monetary policy will be keenly watched.

In the latest print, India's CPI inflation eased to 5.02% in September 2023 compared to 6.83% print in August 2023. The latest inflation rate is well below the market consensus of 5.5%. That being said, the country's retail inflation has dropped below RBI's tolerance limit of 6% for the first time in three months. The September data was broadly owing to a sharp decline in food inflation which came in at 6.56% in September 2023 versus 9.94% in the previous month.

After the latest inflation data, CARE Ratings pointed out that food inflation eased sharply due to the cooling in prices of vegetables and deflation in edible oils. However, the decline was not broad-based as price pressures for cereals, pulses and spices, which are more persistent, remained elevated.

CARE's note said, "Even within vegetables, while the sharp correction in tomato prices continued in September on the back of improved supply, Onion prices marched higher due to tightened supply and reduced shelf life. On August 19 the government imposed a 40% export duty on Onions to improve domestic availability and contain Onion prices."

"With the arrival of fresh harvest in the market from October onwards and expected moderation in fuel inflation, the CPI inflation is likely to fall further. However, given the looming uncertainties regarding the Kharif harvest and the festive-led boost in demand, inflation is expected to remain range-bound in the coming months," CARE's note added.

Onion is a semi-perishable vegetable and is harvested during the rabi season accounts for 65% of onion production, and hits the markets from April to May. The same crop must continue to meet the consumer demand till the month of October-November every year before the kharif crop is harvested and brought to the market.

As per the government website, it is therefore vital to successfully store onions in order to meet the regular supply. It is observed that nearly 30-40% of the crop is lost during storage due to various reasons in the form of physiological weight loss, rotting, sprouting etc. In unexpected situations such as natural calamities, the losses even go beyond 50% creating heavy stress both on the demand and supply sides.

The losses that occurred during storage are in terms of qualitative as well as quantitative ways. Hence, it is imperative to take some crucial steps about onion storage with minimum losses to ensure adequate supply to the market thereby reducing the price fluctuations, it added.

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