| MUMBAI, Sept 19
MUMBAI, Sept 19 The aroma of frying onions from
the Britannia and Co. restaurant might not penetrate the office
of India's central bank governor Raghuram Rajan a block away,
but like the eatery's customers, he can't escape the soaring
price of the pungent vegetable.
The price of onions has added to Rajan's already full plate
as the new head of the Reserve Bank of India (RBI) wrestles over
how to help stabilise the rupee currency and tackle inflation
without further dampening economic growth.
A former IMF chief economist, Rajan took over at the RBI on
Sept. 4 in the middle of India's worst economic crisis in 20
years. He will announce his first monetary policy review on
The U.S. Federal Reserve's surprise decision on Wednesday
not to wind down its massive monetary stimulus just yet helped
the rupee to a one-month high on Thursday, so inflation may have
now moved up on his list of priorities.
In August, the cost of onions was 245 percent higher than a
year earlier, while other vegetables shot up 77 percent, driving
headline inflation to a six-month high. Onion prices have risen
even further in September, prompting the government to take
steps to limit exports.
Eaten raw as a side dish, or blended into a vast array of
curries, onions play a prominent role in Indian cuisine and
public anger rises quickly whenever prices spike.
In Britannia, the pinch is being felt by customers who
include employees of the Reserve Bank, who drop by to lunch on
steaming plates of its famous Parsi berry pulav rice.
"Instead of one person eating one plate, two people are
splitting. And three people are dividing two plates," said Boman
Kohinoor, the 91-year-old co-owner of the restaurant.
Much remains unchanged in Britannia, which was founded in
1923, 12 years before India's central bank was set up. But the
prices keep on rising.
The restaurant raised prices on its menu by between 30 and
50 rupees ($0.50-$0.80) earlier this year -- a fragrant plate of
rice-based chicken biryani now costs 350 rupees -- and Kohinoor
said the soaring costs of ingredients may force him to hike
prices again by April.
With overall food prices up an annual 18 percent last month,
Kohinoor's new neighbour at the Reserve Bank will probably be
careful not to stoke inflation in other areas, despite calls
from industry to cut interest rates and lower borrowing costs.
But in reality there is little Rajan can do to prevent the
Erratic prices for perishable goods are routine in India,
partly because the majority of farms depend on the variable
monsoon for rains. This year, a drought followed by too-heavy
rain affected supplies.
Consumers are also hostage to inadequate storage facilities
and transport bottlenecks - that together cause up to 30 percent
of fresh produce to rot before it reaches the market - and a
distribution network in which many layers of middlemen take
cuts, forcing prices higher.
Whatever the causes, onion prices have political
consequences in India - in the 1998 New Delhi elections the
Bharatiya Janata Party (BJP) was booted out of office by the
Congress party after prices touched 60 rupees per kilo.
The significance will not be lost on Prime Minister Manmohan
Singh, whose Congress party faces national elections by May. The
Congress party local government in Delhi and its rivals the BJP
have been trying to out-do each other selling the vegetable at
below market rates from the back of trucks in the city.
Discount site Groupon offered onions at 9 rupees per
kilogram earlier this month, a discount of as much as 90
percent, advertising the deal with the image of an onion in a
jewellery case. Demand was so high its site crashed.
But Rajan, who had a lucky break on Wednesday when the U.S.
Fed decided not to reduce the flow of cheap dollars that help
drive investment flows to emerging markets such as India, might
soon be in for another reprieve.
Strong rains in the current monsoon season mean some are
predicting a bumper onion crop this year - and farmers are
forecasting prices will drop sharply over the next few weeks.
"Onion prices to ease in 2-3 weeks as fresh output arrives
from Maharashtra, other states," agriculture minister Sharad
Pawar posted on Twitter on Thursday.
($1 = 63.2650 Indian rupees)
(Editing by Frank Jack Daniel & Kim Coghill)