* Govt curbs exports, cracks down on hoarders
* Opposition to foreign retailers limits competition
* Investment in cold storage chain is insufficient
* Nearly one-fifth of fresh produce rots
By Rajesh Kumar Singh and Mayank Bhardwaj
NEW DELHI, Aug 8 It's been more than a month
since Nirmala bought fresh tomatoes. A fourfold rise in prices
since early June has made the essential ingredient in Indian
curries and sauces a luxury she can no longer afford.
"Buying tomatoes feels like buying jewellery," says the
29-year-old maid, who is struggling to make ends meet on her
monthly pay of $l65 as prices for fresh staples such as onions
and potatoes also soar in New Delhi.
Prime Minister Narendra Modi's election triumph in May had
raised hopes of quick action to tackle India's recurring food
price shocks. But, despite his strong economic record of running
Gujarat, he has resorted to an old inflation playbook that
contributed to the last government's crashing defeat.
Just like his predecessor, Modi has imposed export curbs and
cracked down on hoarding. While these steps can give brief
relief, they cannot fix a dilapidated system controlled by
So far, the cash-strapped government has committed to invest
less than one-tenth of the amount it estimates is needed to fix
India's cold supply chain. It opposes the entry of foreign
supermarket giants who might set up their own logistics.
Its only innovation, a food price stabilisation fund, is at
$82 million derided as too tiny to make any difference in
feeding the country's 1.2 billion people.
Economists who had backed Modi to put Asia's third largest
economy back on track are already expressing unease at the
government's failure to lay out a credible inflation strategy,
beyond short-term improvisation.
Modi's approach is that of a "district collector" rather
than a structural reformer, said Rajiv Kumar, a senior fellow at
the privately-funded Centre for Policy Research in New Delhi.
The reference is to India's army of low-level officials whose
role - dating to British colonial rule - includes being a local
tax man and administrator.
"This is my fear about this government - that it is being
captured by the bureaucrats," Kumar says. "Competition is the
best short-term guarantee to reduce prices."
Officials privately concede that inward investment in
multi-brand retail would help revamp an archaic distribution
system that forces farmers to sell at regulated markets where
middlemen command hefty markups.
India is the world's second-biggest producer of fruit and
vegetables after China, but it battles chronic shortages as an
estimated 18 percent of the crop goes waste every year due to
inadequate cold storage and refrigerated transport facilities.
New Delhi estimates it needs to invest $9 billion in the
cold supply chain by March 2016 to handle growing output of
fruit and vegetables. That is more than 10 times the $822
million allocated in Modi's maiden budget last month, and far
more than the government can afford.
The South Asian nation has 6,300 cold storage facilities
with capacity of 30 million tonnes, barely half its needs, the
National Horticulture Board estimates.
Annual retail inflation has averaged about 9.5 percent since
January 2012, when the government started its latest data
series. In the same time, vegetables have gone up by 64 percent.
"Last year, it was onion; this year, it is tomatoes; next
year, it will be something else," says Nirmala. "Every year the
story remains the same."
Onion prices surged last year as high as $1.60 a kilogramme,
making them more expensive in India than in the United States,
where incomes are roughly 35 times higher.
SAPPED CONSUMER APPETITES
Economists say curbing runaway food prices will be vital if
India is to achieve a broader revival from a two-year-old
slowdown in growth. Food bills devour 35 percent of household
incomes, sapping appetites for discretionary spending.
Prices for fresh produce also are causing indigestion at
India's central bank, which wants to reduce retail inflation to
6 percent by 2016. The Reserve Bank of India held rates on
Tuesday, citing the risk that inflation could get higher due to
weak monsoon rains needed for summer crops to grow.
Abhijit Sen, an adviser to the last government, says only a
combination of more cold stores and better mobility of food
stocks can solve the problem. But ramping up investments will be
a challenge due to stretched government finances.
"That's the situation which this government faces as much as
the previous government," Sen told Reuters.
A senior official in the Modi administration defended its
inflation approach, saying prices would have risen even more
quickly if the government had not taken prompt action as recent
extreme heat and dry weather stoked food supply fears.
"We all know the long-term solutions, but they will not
solve the problem overnight," he said. "At the moment,
administrative measures are the only recourse."
(Editing by Douglas Busvine and Richard Borsuk)