Centre keeps a wary eye on the sky as onion looms large over state polls

More than a decade since the Congress party led by Sheila Dixit lost power in Delhi, an event partially blamed on sky-high onion prices in the state, no one wants to take a chance.

As clouds gather over Maharashtra, Haryana, Jharkhand and Jammu and Kashmir that will hold assembly elections later this year, the Centre is racing to gauge the likelihood of downpours that could destroy crop and trigger price hikes across the country, two people aware of the development said.

The Union food and consumer affairs ministry is planning to source and monitor district-wise rainfall data in the backdrop of excess rains forecast for September, the people cited above said on the condition of anonymity. This is crucial especially since Maharashtra, where the ruling National Democratic Alliance is facing a stiff challenge from the rival Maha Vikas Aghadi, hosts the country's biggest onion market in Lasalgaon near Nashik, and crop losses in the state could drive up prices across the country.

Central buffer

In case of potential crop damage, the government will likely sell onions from the central buffer stock at subsidized rates to curb inflationary pressures, one of the two people mentioned above said. During price spikes in previous years, the government had also imposed stock limits and prohibited onion exports.

"The rainfall predicted in September could impact both kharif and rabi onion crops," said Vikram Gaikwad, an onion farmer from Maharashtra's Ahmednagar. "Excessive rains may not only affect the kharif harvest but also delay the planting of the late kharif crop, which would then push back rabi sowing. This could create a domino effect, disrupting the entire onion supply for months," Gaikwad said.

Last year, rainfall during the June-September period was 95% of the 50-year average; but in the crucial harvest month of September, rains were 13% above normal. As a result, onion production dropped to 24.22 mt in the 2023-24 crop year from 30.28 mt the previous year, according to data from the Consumer Affairs Ministry. As prices rose, the government sold onions to consumers at a subsidized rate of ₹25 per kg, before banning its exports in December. The ban was lifted in May 2024 with a minimum export price of $550 per tonne and a 40% export duty.

Crop damage

Any crop damage from excessive rains could push prices higher “significantly", the second person added. Prices had touched a high of ₹100 per kg in 2023 due to reduced production.

However, consumer affairs secretary Nidhi Khare assured there will be no price rise even during the unfolding festive season. “The sowing of kharif onions has reached 290,000 hectares, which is 52.63% more than last year's sowing coverage of 190,000 hectares as of 27 August," Khare said.

This year, monsoon rainfall across the country was already 7% above average by the end of August, and September is expected to see rains that are 9% above normal. The weather patterns have sparked concerns of similar disruptions to the onion supply just as it happened last year.

D.K. Joshi, chief economist at Crisil, agreed that some damage from excess rain is expected this year too, but it remains to be assessed whether it will be widespread across India or localized.

"It depends. Just because there’s excessive rain in some areas doesn’t necessarily mean that food inflation will go up. It’s important to properly assess the situation," Joshi said over the phone.

Managing food inflation

With assembly elections approaching, managing food inflation, particularly for politically sensitive items like onions, has become a critical challenge for the central government. However, while onions are the most immediate concern, heavy rains could damage other crops such as potatoes and tomatoes as well.

K.J. Ramesh, former director general of India Meteorological Department, stressed the importance of timing in harvesting onions. "Even with sufficient rainfall, farmers need at least a week for water to dry up before harvesting the crop. If sowing happened earlier, the harvest might begin by late September, mitigating some of the potential damage," he said.

Onions are harvested in three seasons—rabi (March-May), kharif (September-November), and late kharif (January-February). The rabi crop, which accounts for the majority of India’s onion production, is crucial for maintaining stable prices throughout the year.

Subsidized onions

On Thursday, the central government began selling onions at ₹35/kg to curb in the backdrop of rising prices, following a strategy employed earlier this year to control tomato prices.

“The subsidized onions will be sold in Delhi NCR and Mumbai in the first phase," Union minister of consumer affairs and food distribution Pralhad Joshi said while launching the initiative. “In the second phase, they will be sold in the capital cities of different states and in the third phase, which will be rolled out in the third week of September, onions at discounted rates will be sold across the country."

Currently, onions are retailing at over ₹70/kg in the national capital and ₹80/kg in some regions. The average retail price of onions is currently ₹50 per kg, up 19% from a month ago when the price was ₹42 per kg, and up about 52% from a year ago when the price was ₹33 per kg.

Farmers' concerns

Farmers are already upset, having dealt with erratic weather patterns and changing government policies on imports and exports. Measures like the export ban and its subsequent lifting have left many farmers hesitant to increase their sowing area this year.

“The government’s policies do not support farmers. Whenever prices rise, the government begins selling onions at subsidized rates to cool down the prices, which results in a loss for farmers," said Bajirao Gagare, an onion-grower from Maharashtra. "The government makes decisions with consumers' interests in mind rather than those of farmers. As of now, the projected loss could be around 20% to 30%. However, the exact damage to crops will be evaluated after the harvest, as due to higher moisture content, the red or kharif onions can get damaged even after the harvesting," Gagare said, who runs ‘Hi Maitri Vicharanchi’, a farmers’ group on social media.

In July, India’s retail inflation, measured by the Consumer Price Index (CPI), rose 3.54%, its lowest level in nearly five years. However, the overall CPI increased by 1.42% from the previous month, marking the largest monthly rise in a year. The food and beverages price index saw a 2.47% increase, with vegetable prices surging by 14.13% in July, driven by seasonal shortages.