India suspends tax on onions to curb soaring inflation

NEW DELHI // The Indian government, facing mounting public anger over soaring onion costs, on Wednesday scrapped tax on imports of the vegetable to try to rein in prices of the staple food.

The move comes after Prime Minister Manmohan Singh expressed "deep concern" over the cost of onions doubling and called for steps to lower the price of what is a basic item on every Indian family's shopping list.

Onions are selling for 80 rupees a kilogram (88 cents a pound) - turning the vegetable into an unaffordable luxury for India's poor - having rocketed from 35 rupees in a few days and stories about the rise are front-page news.

The Congress government is mindful that costly onions have a history of political fallout with voters in 1998 ousting the Hindu nationalist Bharatiya Janata Party (BJP) in Delhi state polls after a sharp surge in onion prices.

The so-called "onion factor" also helped defeat the left-leaning, now defunct Janata Party in 1980 parliamentary elections when prices leapt.

"Onions are used in virtually every dish and so it symbolises inflation – especially for the poor man who gets hit the most," Deepak Lalwani, India director of London-based investment consultancy Lalcap, told AFP.

As part of moves to boost supplies and cut prices, the government, already on the defensive over a multi-billion-dollar telecom corruption scandal, asked its state-run trading firms to look for onion import contracts.

"The government is monitoring the onion price situation on an almost hourly basis," said Consumer Affairs Secretary Rajiv Agrawal.

The government, which has been battling to curb food inflation of nearly 10 percent, earlier banned onion exports but has warned prices will stay high for several weeks due to unseasonal rains in western India's onion-growing region.

Authorities also say traders hoarding onions are driving up prices.

"Disturbing allegations that hoarding in some onion-producing states have officialdom's blessings demand probing and, if needed, tough punitive action," said the Times of India in an editorial.

The newspaper said onions are known as "the poor man's food" but now their prices "would bring tears even to the elite."

Onions are being trucked in from neighbouring Pakistan, where they cost a fifth of the Indian price, in a bid to lower prices.

"The customs duty on onions has been brought down to zero," Finance Secretary Ashok Chawla told reporters.

The Congress government, which fears a backlash from the "aam admi" ("common man"), which is its main voter-support base, has also asked state-run cooperative stores to sell onions at wholesale rates in a bid to cool prices.

The government has been feeling the heat over inflation as the opposition BJP has seized on the issue to galvanise its fortunes ahead of a number of key state elections next year.