CNBC’s Inside India newsletter: The humble onion could hold India’s economy hostage

This report is from this week’s CNBC Inside India newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Do you like what you see? You can subscribe here

A curry without onions would be considered blasphemous by most of India.

So even a modest change in the price of the bulbous vegetable quickly becomes the talking point around the dinner tables for hundreds of millions of people in the country.

And it has been for the past year.

The price of raw onions has increased 165% over the past year, according to the Lasalgaon Agricultural Produce Market Committee, which is India’s largest wholesale onion market. Prices are also inflated for other vegetables, such as tomatoes, which now cost nearly twice as much as this time last year.

Bad weather has been behind much of the destruction. Last year’s drought and ongoing heat wave, which CNBC previously reported on, have disrupted supplies of staple foods like grains and vegetables.

Temperatures in large parts of the country are around 4 to 9 degrees Celsius (7.2 to 16.2 Fahrenheit) above average for this period of the year. High heat has spoiled large quantities of vintage and recently stored vegetables and is threatening to halt the planting of a fresh batch of crops.

Food prices, which rose by an annualized 8.7% in both April and May, account for nearly half of the overall consumer price basket. The sharp rise in food costs has kept headline inflation above the central bank’s 4% target, preventing it from cutting interest rates.

“The Indian economy remains hostage to the interwoven food price shocks,” Michael Patra, deputy governor of the Reserve Bank of India, said in his statement at the latest monetary policy meeting. “Food prices are preventing any consideration of possible changes in the stance of monetary policy,” he added.

Keeping rates high, however, appears to be “an unacceptably high sacrifice of growth,” according to Jayanth Varma, another member of the central bank’s monetary policy committee, which voted for the rate cut. Politically, an economic slowdown is unlikely to bode well for the newly elected BJP-led coalition government.

The anxiety was palpable this week when the government announced restrictions on traders stockpiling wheat.

“Setting stock limits was only one option. We have many other tools at our disposal to ensure that wheat prices do not rise abnormally,” food secretary Sanjeev Chopra told reporters, adding that there was no wheat shortage. in place.

The government also has the option of removing import duties – currently set at 40% on wheat – to keep prices down.

However, Prime Minister Narendra Modi is stuck in a roadblock if he is to win the favor of the country’s farmers ahead of elections in two major farming states scheduled for later this year.

Lowering the tariffs would allow grains to be imported from wherever they are cheaper and lower their cost within India, but also reduce profits for local farmers.

For now, the prime minister has instead chosen to increase the price the government is willing to pay farmers by 5.4% to about $275 per metric ton of rice. These grains are then redistributed to low-income families at no cost, making it the largest food welfare program in the world.

There are signs that these cost pressures are unlikely to ease soon due to further bad weather. This week, at least 200,000 people have been affected by floods in India’s northeastern region, a key rice-growing area.

But an elevated inflation and interest rate environment doesn’t seem to be deterring companies or investors.

“You talk to Indian companies, and even with inflation at 6%, they’re barely batting an eyelid because they’re growing at double or more,” said James Thom, chief fund manager of New India Investment Trust, which trades as an ETF in London. “[They] they are used to operating with that level of inflation for decades”.

“That’s just the norm,” he added.

Apple supplier in India allegedly excluded married women from jobs. Prime Minister Narendra Modi has asked a government department to look into reports that Apple is a supplier Foxconn rejected married women from iPhone assembly jobs in the country. Foxconn recruitment agents and human resources sources interviewed by the Reuters news agency cited family responsibilities, pregnancy and increased absenteeism as reasons why Foxconn did not hire married women at the factory. Foxconn said it “strongly denies” those allegations.

S&P upgrades Adani Ports, predicts steady earnings growth. The credit rating agency raised its outlook Adani Ports & SEZ from neutral to positive, saying the company is likely to see steady growth in earnings and cash flows. Shares in Adani Ports have nearly tripled since the low they hit following the release of an explosive report by short seller Hindenburg.

‘One of the cheapest ways’ to invest in India’s infrastructure boom. Infrastructure spending is picking up and Causeway Capital Management’s Arjun Jayaraman is happy with a pure infrastructure stock [subscriber content] which is expected to benefit significantly. Jayaraman also believes the stock is “very low risk” as it is a state-owned enterprise.

American diplomat says America needs more Indian students for science. Kurt Campbell, the deputy secretary of state, said American universities should welcome more students from India to study science, rather than from China. He noted that colleges were limiting Chinese students’ access to sensitive technology given security concerns.

Indian stocks are on track for their best monthly gain this year. of Nifty 50 The index closed above 24,000 points for the first time as it heads for a 2% gain this week. The index has increased by 10% this year.

The benchmark 10-year Indian government bond yield has edged up to just under 7%, back to where it was two weeks ago.

On CNBC TV this week, Amish Shah, head of India research at Bank of America, said that if the Indian government decides to allocate more money to capital spending instead of increasing welfare spending in its next budget, it could cause the stock market to rise. BofA expects the Nifty 50 index to rise to 24,500 points.

Meanwhile, Neeraj Aggarwal, head of Boston Consulting Group Asia-Pacific, said India’s benefit from China’s diversification of the world is still early. However, he added that “a lot of work needs to be done” by the Indian government to promote manufacturing and job creation.

Indian government bonds will be included in the JPMorgan Emerging Markets Bond Index on Friday.

Either India or defending champions England will play South Africa in the T20 Cricket World Cup tournament this weekend on June 29. Thursday’s semi-final in Guyana has been postponed due to rain.

Shares of Indian liquor exporter Allied Blenders & Distillers debut on July 1 and steel maker Vraj Iron & Steel lists on July 3.

June 28: Indian government bonds included in JPMorgan bond index, US inflation

July 1: Manufacturing PMI: India, Russia, Eurozone, UK and US

July 2: Eurozone inflation and unemployment rates

July 3: Services PMI: India, Russia, Eurozone, UK and US

July 4: UK General Election