India's economy may be at risk due to the onion's high prices.

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The big story

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

The bulbous vegetable's price change is a dinner table topic for millions of people in the country.

And it has been for the past year.

Over the past year, the cost of raw onions has increased by 165%, as per the Lasalgaon Agriculture Produce Market Committee, which is India's largest wholesale onion market. Additionally, the price of other vegetables, such as tomatoes, has nearly doubled, compared to the same time last year.

The drought last year and the ongoing heatwave have caused disruptions in the supply of staple foods such as grains and vegetables.

Large parts of the country are experiencing temperatures that are 4 to 9 degrees Celsius (7.2 to 16.2 Fahrenheit) above average for this time of year. This high heat is causing significant damage to recently harvested and stored vegetables, and is putting at risk the planting of a new crop.

Nearly half of the overall consumer price basket is made up of food prices, which increased by 8.7% annually in April and May. The rise in food costs has kept headline inflation above the central bank's target of 4%, preventing it from cutting interest rates.

According to Michael Patra, deputy governor of the Reserve Bank of India, the Indian economy is being constrained by rising food prices, which are preventing any changes in the monetary policy stance.

The central bank's decision to cut rates is politically unwise, as it may lead to an economic slowdown, according to Jayanth Varma, a member of the monetary policy committee.

This week, the government's announcement of limits on traders stockpiling wheat caused palpable anxiety.

Sanjeev Chopra, the food secretary, stated to reporters that imposing stock limits was only one option to prevent abnormally high wheat prices. He also emphasized that there were other tools available to achieve this goal, and that there was no wheat shortage in the country.

Additionally, the government can choose to eliminate the 40% import tax on wheat to keep prices stable.

If Narendra Modi wants to win the support of farmers in upcoming elections in two major agricultural states, he faces a dilemma.

Lowering tariffs would allow for the import of grains from cheaper sources, reducing their cost within India, but at the expense of local farmers' profits.

The government has increased the price it is willing to pay farmers for rice by 5.4% to approximately $275 per metric ton, while simultaneously redistributing these grains to low-income families at no cost, making it the largest food welfare program globally.

The floods in India's northeastern region, a major rice-growing area, have affected at least 200,000 people this week. It is unlikely that the cost pressures resulting from this disaster will decrease soon due to the bad weather.

Despite the presence of high inflation and interest rates, companies and investors do not seem to be deterred.

"Indian companies are accustomed to functioning with high inflation rates for many years."

"That's just the norm," he added.

Need to know

The Indian supplier of Apple has been accused of excluding married women from jobs. The Indian government has launched an investigation into the matter after receiving reports that the supplier rejected married women for iPhone assembly jobs in the country. According to sources, Foxconn, the supplier, cited family duties, pregnancy, and higher absenteeism as reasons for not hiring married women at the plant. However, Foxconn has denied these allegations.

The credit ratings agency, S&P, has upgraded Adani Ports from neutral to positive, predicting that the company will experience resilient earnings growth and cash flow. Since the release of an explosive report by short-seller Hindenburg, Adani Ports' shares have risen nearly three times.

One of the most affordable ways to invest in India's infrastructure growth is through a pure-play infrastructure stock, which is expected to experience substantial benefits, according to Causeway Capital Management's Arjun Jayaraman. He also considers the stock to be "very low risk" as it is a state-owned enterprise.

The U.S. deputy secretary of state, Kurt Campbell, stated that American universities should increase the number of Indian students studying sciences, rather than Chinese students, due to security concerns surrounding Chinese students' access to sensitive technology.

What happened in the markets?

This year, the Indian stock index has experienced a 10% increase and is currently on track for its best monthly gain.

The Indian government bond yield has risen slightly to nearly 7% and is now at the same level as two weeks ago.

According to Amish Shah, head of India research at Bank of America, if the Indian government prioritizes capital expenditure over welfare spending in its upcoming budget, it could lead to a stock market rally. BofA predicts that the Nifty 50 index will reach 24,500 points.

According to Neeraj Aggarwal, the Asia-Pacific chair of Boston Consulting Group, India's benefits from the world shifting away from China are still in their early stages. Nevertheless, he emphasized that more effort is required from the Indian government to encourage manufacturing and create employment opportunities.

What's happening next week?

On Friday, the JPMorgan Emerging Market Bond Index will include Indian government bonds.

This weekend, either India or defending champions England will face South Africa in the T20 Cricket World Cup tournament. The semi-final match in Guyana, scheduled for Thursday, has been postponed due to rain.

On July 1, Allied Blenders & Distillers, an Indian liquor exporter, makes its stock market debut, while Vraj Iron & Steel, a steel maker, lists on July 3.

June 28: Indian government bonds included in JPMorgan bond index, U.S. inflation

The manufacturing PMI for India, Russia, the euro zone, the U.K., and the U.S. was reported on July 1st.

July 2: Euro zone inflation and unemployment rate

The Services PMI for India, Russia, the euro zone, the U.K., and the U.S. was released on July 3.

July 4: U.K. general election