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Published 14:20 IST, January 31st 2025

Economic Survey 2025: Tomatoes, Onions, and Potatoes Drive Food Inflation, Raising Rate by 1.9%

While core inflation is easing, food inflation remains a concern, largely driven by supply-side disruptions and extreme weather.

Reported by: Musharrat Shahin
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Food Inflation Driven by POT Items
Food Inflation Driven by POT Items | Image: R Business

In contrast to worldwide patterns of constant or dropping food inflation, India's rate of food inflation has stayed steady during the last two years. Reduced harvest of particular food commodities and supply chain disruptions made worse by harsh weather occurrences are some of the causes of this. 


Additionally, tomatoes, onions, and potatoes (TOP) have been major drivers of food inflation. Without these three vegetables, the food inflation rate would have been 6.5%, 1.9% lower than the current level.
 

India's Consumer Price Index (CPI) inflation has moderated in FY25 (April-December) compared to the previous year. This decline is mainly due to a sharp drop in core inflation, which fell by 0.9 percentage points. The slowdown in core services inflation, along with lower fuel prices, has eased financial pressure on households.

"Vegetables and pulses together hold a total weightage of 8.42 per cent in CPI basket. However, their contribution to the overall inflation stood at 32.3 per cent in FY25 (April to December). When these items are excluded, the average food inflation rate for FY25 (April-December) was 4.3
per cent, which is 4.1 per cent lower than the overall food inflation" reported the Economic Survey. 


Economic Survey 2025: Food Inflation Drivers


Unlike the global trend of stable or declining food prices, India's food inflation has remained high, mainly due to supply chain disruptions caused by extreme weather events and lower harvests of specific food items.


Two key contributors to inflation have been vegetables and pulses, which together make up only 8.42% of the CPI basket but accounted for 32.3% of overall inflation in FY25. Excluding these items, food inflation would have been 4.3%, significantly lower than the actual rate.


Additionally, tomatoes, onions, and potatoes (TOP) have been major drivers of food inflation. Without these three vegetables, the food inflation rate would have been 6.5%, 1.9% lower than the current level.


Economic Survey 2025: Extreme Weather Increases Price Volatility


Vegetables are highly vulnerable to climate conditions, making them more sensitive to price fluctuations. The report notes that heatwaves, cyclones, floods, and unseasonal rainfall have negatively impacted production, disrupting supply chains and causing inflationary pressure.


According to IMD data, India experienced heatwaves on 18% of days between 2022-2024, a sharp rise from just 5% in 2020-2021. Such extreme weather conditions have worsened food inflation, particularly in the horticulture sector.


Onion and Tomato Prices Remain Unstable


Despite government efforts to control prices, onion inflation remained high in FY24 and FY25 due to lower production. Since 70% of onion production happens in the Rabi season, shortages in previous years have led to continued inflation.


Similarly, tomato prices have been volatile since FY23, as tomatoes have a short shelf life (1-2 weeks) and are difficult to store. With over 65% of production occurring in the Rabi season, supply disruptions in key producing states like Madhya Pradesh, Andhra Pradesh, Karnataka, Gujarat, and Odisha have significantly impacted prices.


Economic Survey 2025: Inflation Outlook for FY26


According to projections, RBI revised its FY25 inflation forecast from 4.5% to 4.8% and expects headline inflation to ease to 4.2% in FY26 under normal conditions. The IMF forecasts inflation at 4.4% in FY25 and 4.1% in FY26 where as the World Bank predicts commodity prices to fall by 5.1% in 2025 and 1.7% in 2026, mainly due to declining oil prices.


Economic Survey 2025: Government Measures 


The government has taken several supply-side measures to stabilize food inflation, including strengthening buffer stocks of essential food items.
It also released food stocks in the open market periodically and reduced import duties on key food products. It also prevented hoarding by imposing stock limits.


Additionally, Budget 2024-25 has outlined initiatives to develop large-scale vegetable production clusters and support farmer-producer organizations, cooperatives, and startups in vegetable supply chains. It also aims for self-sufficiency in pulses and oilseeds to reduce dependency on imports.


While core inflation is easing, food inflation remains a concern, largely driven by supply-side disruptions and extreme weather. The government's proactive steps, combined with a stable commodity price outlook, could help ease inflationary pressures in the coming years.

Get the latest live news on Republic Business, along with breaking news and top headlines from Budget 2025, business, economy, markets, and around the world.

Updated 14:20 IST, January 31st 2025