Indira Gandhi rode back to power in 1980 in the ‘Onion Election’, defeating the Janata Party government by harping on the rising prices of the humble bulb. Since then, political observers point to at least two other general elections where rising onion prices have made (and unmade) political fortunes.

As prices of onion touch record highs once again in 2019, the Narendra Modi government seems helpless in curbing both price rise as well as the anger of the aam aadmi. It is just as well that no general election is round the corner.

Onion prices not only make for tricky politics, but also seem to be a major factor in determining India’s monetary policy. Remember, the Reserve Bank of India (RBI) decided to hold repo rates (rates at which it lends to banks and rates which ultimately determine your EMIs) last week, surprising all by pausing its earlier rate-cutting spree.

The central bank had cut the repo rate in five successive policy announcements before December 5, so obviously worries over inflation have overtaken those over stalling economic growth. The inflation data for November shows the RBI’s concerns are not unwarranted. Retail inflation in November touched a three-year high at 5.5%. The main cause of this spike in inflation is the increase in prices of vegetables, especially onions.

This inflation print breached the medium-term inflation target set by the Monetary Policy Committee of 4% for the second consecutive month, and, as explained earlier, was triggered by a rise in prices of food items.

Within food items, how the price of the onions has been moving is evident from data presented in Parliament. For the first four days of December, the retail price of onion was the highest in 36 months, six times the retail prices in January 2017, as per this written reply in Rajya Sabha.

The average retail price in the month till December 4 was Rs 82.17 against Rs 14.84 in January 2017, as per this government data. The onion costs nearly four times more in average retail price across the country in December compared to July this year.

Ratings agency CARE Ratings said in a note earlier that inflation has become one of the major threats to growth and this has been caused mainly by “the vegetables category, within which onions have played the dominant role in driving prices. This, however, is not a new phenomenon and has become common over the years. Prices tend to increase sharply every time there is a crop failure which has been caused more often than not by a delayed withdrawal of the monsoon or flooding at the time of harvest when the kharif crop is damaged.”

What does the worrying inflation number in November mean? Analysts at brokerage Edelweiss said that while retail inflation was led entirely by food, core inflation further dis-inflated.

“Within food, the increase in inflation is reasonably broad based, led by normalisation of last year’s very low base and an unseasonal spike in vegetable prices. We view it as a temporary spike rather than the onset of fresh inflationary dynamics, given high global food stocks of most commodities. Core inflation (ex-commodities) is 3.4% year on year, down 40 bps (0.4%) over October and at a series low — implying weak domestic demand.”

The analysts went on to say that the raised vegetable prices may lead to higher food inflation over a couple of months. And the recent telecom tariff hikes could add 25–50 bps (0.25-0.5%) to overall inflation over the next 12 months.

“Hence, headline inflation risks overshooting the RBI’s H2FY20 forecast by 30–50 bps. If so, the possibility of a February rate cut stands reduced, though we expect the RBI to resume the easing cycle in FY21”.

In other words, any further rate cuts by the central bank are in doubt now, given the rising and persistently high food prices and also the increase in telecom tariffs.

The spectre of rising retail inflation is now coupled with slowing factory output and some economists are already using the term “stagflation” to define the goings on in the Indian economy now.

Earlier this month, former prime minister Manmohan Singh had warned of stagflation becoming a reality since India was witnessing slowing economic growth (4.5% GDP growth in the July-September was a record low), rising unemployment and galloping inflation.

Retail inflation in November was up 5.54% over November 2018, compared to an increase of 4.62% in October over the same month last year. In other data set released by the government, October industrial output fell 3.8% year on year, a decline for the third consecutive month and a significant divergence from the 8% growth seen in factory activity in October 2018.

The only saving grace was that the slowdown in factory activity in October was less than in September (4.3%). Out of 23 industries in the manufacturing sector, 18 registered contraction in output in October, 10 industries registered a double digit decline.

So as things stand, monetary easing has taken a pause, fiscal policy initiatives having seen middling success in addressing growth concerns and there are rising concerns over government’s own finances. There is little room for any marked improvement in India’s economic growth just yet.

(The author is a senior journalist. Views are personal)