The tax department has found the existence of cartels in onion trade across Maharashtra, Punjab and Haryana which are cornering the price-sensitive vegetable across the country. The presence of cartels was discovered during raids the I-T department conducted last week at the behest of the Finance Ministry.

The department has apprised the Finance Ministry of its findings during the raid, a senior tax official told ET. He added that it was likely that the department would extend the scope of the raids to other essential commodities.

The action comes after food inflation has spiralled to double digits and threatens to raise the overall index of prices way beyond the policymakers comfort level of 6%. The Reserve Bank of India is expected to raise a key interest rate at its quarterly credit policy review later this month.

High input and borrowing costs will have a dampening effect on corporate earnings and has been responsible for the recent tanking of the stock markets.

The tax raids were conducted in Maharashtra, Delhi, Tamil Nadu, Punjab, Haryana, Jammu & Kashmir, Gujarat and the
city of Mumbai. Interestingly, the I-T department has claimed that onion prices have come down between 15% and 31% in these places due to raids conducted by it last Saturday. (see table)

A top trade official in Maharashtra admitted the presence of black marketers who had taken advantage of the shortage to spike prices. The farmer gets around Rs 25-30 per kilo of onion even as retail prices of the commodity are hovering over Rs 70-80 when the mark-up from wholesale to retail should be just Rs 5-6 for storage and transport.

It is clear that the money is being pocketed by some unscrupulous traders. But this is not a new phenomenon. In the past, we saw this happening in pulses and now are seeing the same in onions and garlic.

The official added that retail prices would rationalise to Rs 30-35 a kilo by mid-February after the arrival of the late kharif crop and further to around Rs 20 a kilo when summer crop arrives in April.

The wholesale price index rose to a 23-week high of 18.3% for the week ended December 25, up from 14.4% in the previous week. So far, all the attention in agriculture has been concentrated on conventional crops such as cereals, oilseeds and pulses and this is the first time that a price shock is being caused by vegetables, fruits, poultry and dairy products, said Madan Sabnavis, chief economist, CARE Ratings.

Since India is already the largest producer of fruits and vegetables, the solution in the medium term is to improve logistics support. Any solution in the short term seems unlikely, with prices likely to come down only upon new arrivals.