Pressure is building in Indian kitchens. Prices of tomatoes, onions, potatoes, pulses and spices – all the basic ingredients - are soaring as the world’s most populous country heads towards key state polls later this year and national ones soon after. It increases the temptation for Prime Minister Narendra Modi’s ruling Bharatiya Janata Party to indulge in some fiscal populism.
A surge in food prices drove annual retail inflation to 7.44% in July, the most in 15 months. The government on Saturday slapped a 40% export duty on onions on top of its earlier ban on overseas sales of some rice varieties and removal of import curbs to make it easier to buy tomatoes from neighbouring Nepal. A patchy monsoon means shortages may also follow.
Farmers are sowing up to 40% less than normal during the summer cropping season; record-low rains in August could make things worse. While vegetable prices usually spike during the monsoon before starting to subside in September, the reduced seeding of dietary staples heralds a longer spell of expensive meals.
The timing is sensitive. Elections will be held this year in five of India’s 28 states, including heavyweight constituencies Madhya Pradesh and Rajasthan. Pricey onions contributed to the BJP’s ousting from power in state polls in 1998. During the Karnataka state election this year, contesting parties made competing promises of handouts ranging from free cooking fuel to no-cost bus rides for women.
So far New Delhi is trying to work within its limits. It is mulling a plan to reallocate $12 billion of the government budget to more relief measures including lowering fuel taxes and cutting import tariffs, Bloomberg reported last week. It signals intent to protect India’s 5.9% fiscal deficit target this year and its goal to consolidate to 4.5% by March 2026. Yet delays in plans to offload assets like IDBI Bank (IDBI.NS) add pressure.
Fiscal discipline has helped to keep inflation in India under control since Modi came to power in 2014 and supports his appeal to global investors. His government has preferred to spend public funds on capital investments, choosing a credit mechanism over cash transfers to ease stress for households and businesses during the pandemic, for example. It did, though, extend a free food scheme covering roughly 57% of the population until December. Cost of living pressures could push Modi and investors out of their comfort zone.
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CONTEXT NEWS
India’s Ministry of Finance on Aug. 19 slapped a 40% duty on onion exports to improve domestic availability of the vegetable.
Officials are considering a plan to reallocate 1 trillion rupees ($12 billion) from the budgets of various ministries to contain a surge in food and fuel costs, Bloomberg reported on Aug. 17, citing unnamed people familiar with the matter.
Annual retail inflation rose to 7.44% in July, the most in 15 months, from 4.87% in the previous month. The spike was led by prices of pulses, vegetables, cereals and spices. It breached the upper end of the Reserve Bank of India’s tolerance band of 2%-6% for the first time in five months.
Finance Minister Nirmala Sitharaman on Aug. 10 said the federal government has removed import curbs to ease the purchase of tomatoes from Nepal and is importing pulses to relieve pricing pressure.
India banned the export of non-basmati rice on July 20 to clamp down on rising domestic prices of the grain. The country accounts for 40% of global rice supplies.
