India Lifts Ban on Onion Exports

NEW DELHI—India lifted a ban on onion exports Thursday, with food inflation easing to a nine-week low as vegetable prices dropped sharply.

About six weeks after imposing the ban, a response to vegetable prices that were pushing food inflation to multi-month highs, the government is again allowing the export of onions, at a floor price of $600 a metric ton,

Onion prices have fallen nearly 70% from their record highs as fresh supplies of late-sown varieties make up for earlier crop losses in two states.

The government panel deferred a decision on allowing the export of white sugar for the first time in more than two years.

India's food inflation rate slowed to 11.05% from a year earlier in the week ended Feb. 5, sharply lower than the 13.07% recorded a week earlier, according to data issued Thursday by the Ministry of Commerce and Industry. The wholesale price index for food articles was down fell 2.1% from the previous week.

This is the second week in a row food prices have fallen as a series of government measures to increase supplies begins to have an effect. Expectations that price pressures will continue to ebb may reduce the urgency for the central bank to further tighten monetary policy.

"The fall [in food prices] is on expected lines, particularly as the speculative demand during the recent spike in food prices fades," said N.R. Bhanumurthy, an economist at think tank National Institute of Public Finance and Policy. "But the worrying part is that the price levels [of vegetables] are still high and it isn't merely because of a high base." Vegetable prices in the week ending Feb. 5, though down from the previous week, were up 24% from a year earlier.

And the effects of the floods in Australia and fears of damage to China's wheat crop may again stoke food inflation, Mr. Bhanumurthy said.

Amid rising criticism for failing to put a lid on prices, Prime Minister Manmohan Singh Wednesday said the inflation rate will ease to not more than 7% by the end of the current fiscal year in March. After Thursday's data, Finance Minister Pranab Mukherjee said he expects a rate of 7% by then.

According to data released Monday, overall inflation slowed only marginally in January. to 8.23% from 8.43% in December, a smaller drop than many economists anticipated.

Above-average rains mean India is expecting a bumper foodgrain crop in the marketing year ending June, and trade secretary Rahul Khullar said last week that the government would have to review a ban on wheat exports. Last week, the government allowed the export of 150,000 tons of common grades of rice, although it kept in place a general ban on the grain's export.

The Reserve Bank of India has raised its policy rates seven times in less than a year to control demand-led inflation and will next review its policy on March 17. While food prices are easing, some economists are concerned about the prices of non-food articles such as fibers and oilseeds.

"One has to watch them for cues on where overall inflation is headed," said Rupa Rege Nitsure, chief economist at Bank of Baroda. Prices of fibers are up more than 60% from a year ago.

Feb 17^th, 2011

Source: The Wall Street Journal