Why inflation on prices of tomatoes, onions, and potatoes particularly remains a pain point for RBI

To beryllium just to the RBI, fto america spot its grounds successful taming ostentation since it adopted the flexible ostentation targeting (FIT) framework, with a people of 4 per cent +/- 2 per cent. Our investigation of 101 months shows that CPI ostentation exceeded the 4 per cent people 72 per cent of the time, and successful 28 per cent of the cases, it surpassed the precocious threshold of 6 per cent (Figure 1).

Why ostentation connected prices of tomatoes, onions, and potatoes peculiarly remains a symptom constituent for RBI

Various factors person impacted CPI ostentation during this period. These person ranged from plunging planetary prices, particularly of crude and food, to reducing the fiscal shortage successful the aboriginal years of this play (2016 to 2019) erstwhile ostentation was tamed beneath 4 per cent. After that, disruptions successful proviso chains during Covid-19, and the Russia-Ukraine struggle successful 2022, pushed up planetary arsenic good arsenic home inflation.

The outsize power of CFPI connected wide CPI ostentation boils down to the outdated weights assigned to nutrient and beverages successful the CPI basket. Currently, they relationship for 45.9 per cent of the CPI, with nutrient unsocial making up 39 per cent, based connected a 2011-12 depletion survey. It is precocious clip these weights are updated, based connected the 2022-23 depletion survey. The RBI inactive deserves recognition for maintaining ostentation astatine levels little than successful galore emerging markets and processing economies (EMDEs). According to IMF data, successful 2024, India’s ostentation stood astatine 4.4 per cent, good beneath the EMDE’s mean of 7.9 per cent. But the greater the proportionality of nutrient successful wide CPI, the harder it becomes for monetary argumentation unsocial to power inflation. So, replacing aged nutrient weights successful CPI with caller ones, which are apt to beryllium astir 5-6 percent points less, should beryllium a precedence to bespeak the world better.

Let america dive deeper into existent nutrient inflation. The caller surge successful rootlike inflation, peculiarly driven by tomatoes, onions, and potatoes (TOP), is simply a nonstop manifestation of structural weaknesses successful India’s cultivation proviso chains, compounded by adverse climatic conditions. In September 2024, rootlike ostentation contributed a staggering 63 per cent to the nutrient ostentation (CFPI), with year-on-year terms increases of 42.4 per cent for tomatoes, 66.2 per cent for onions, and 65.3 per cent for potatoes. These figures are not simply anomalies, they are symptomatic of deeper inefficiencies and vulnerabilities successful their worth chains that request urgent argumentation attention.

Tomatoes travel the classical “cobweb model” of terms cycles, wherever abbreviated proviso rapidly pushes up prices owed to their perishable nature. Current prices of Rs 60-80/kg stem from delayed kharif arrivals owed to dense rains successful Karnataka and Andhra Pradesh. Karnataka’s cardinal accumulation belts — Chikkaballapur and Kolar — suffered a 20-30 per cent output nonaccomplishment from achromatic alert infestations, worsening the proviso shortage and fuelling nutrient inflation.

Onion retail prices, presently betwixt Rs 50-60/kg, item terrible proviso disruptions. Among the 3 increasing seasons, lone the rabi harvest tin beryllium stored from March to October, serving arsenic a buffer during thin months. This year, bulb retention is somewhat little than past year, with Maharashtra reporting 1.3 LMT retention loss. Incessant rainfall successful Maharashtra, Karnataka, Telangana, and Andhra Pradesh has damaged the kharif crop, delaying arrivals and tightening supply.

Stored stocks of potatoes get released from May to November successful which October sees the largest merchandise arsenic the rabi murphy starts to perish by that month. The little accomplishment to mandis has resulted successful a spike successful prices. Part of this surge tin beryllium attributed to the debased basal effect from the erstwhile year.

India’s recurring terms volatility successful TOP crops demands a much resilient cultivation policy. While Operation Greens launched successful 2018 aimed to stabilise prices by streamlining worth chains, its enlargement to screen each fruits and vegetables diluted its archetypal focus. As a result, proviso disruptions and important post-harvest losses — 18-26 per cent for potatoes, 25 per cent for onions, and 11.6 per cent for tomatoes — proceed to thrust up retail prices. Such losses should not beryllium taken lightly, aft all, a spike successful bulb prices successful the 1998 elections caused the Vajpayee authorities to collapse.

Short-term measures similar the caller 40 per cent export work connected onions uncover the government’s user bias and knee-jerk reactions. The solution lies successful processing a information of TOP crops during surplus periods: Converting astatine slightest 10 to 15 per cent of herb accumulation into paste and puree and dehydrating bulb into products similar flakes and powder. Successful models similar Jain Irrigation’s bulb dehydration concern with farmers, show however specified initiatives tin trim wastage and boost farmers’ income.

What’s genuinely needed is simply a dedicated agency, staffed with experts focused exclusively connected tomatoes, onions, and potatoes. Without specified specialised oversight and semipermanent strategies, RBI volition stay successful a hindrance connected the repo rate. It needs to property for these semipermanent strategies with the authorities arsenic this goes beyond its jurisdiction. Only past tin it heave a suspiration of alleviation from veggie inflation.

Gulati is distinguished professor, Chanda is probe adjunct and Roy is simply a elder chap astatine ICRIER. Views are personal