Supply bottlenecks: In India, they're no small potatoes

Buried in recent monthly data for wholesale prices in India, the wild gyrations of a humble vegetable tell the tale of an economy trapped in inflation by its own
rigidities.
Back in December, after a bumper harvest of potatoes, furious farmers dumped tonnes of their crop on roads in protest over a crash in prices: four months later, the annual wholesale inflation rate of the potato is galloping at 53 percent.
In street markets and on the handcarts of vegetable hawkers, the rise has been even steeper, a shock for millions of Indians who lay their tables each day with curries made of onions, tomatoes, lentils and "aloo", or potatoes.
"We used to buy whatever vegetables we liked, but now we always have to check the prices," says Maninder Kaur, shopping with her family at a market in Jalandhar, in Punjab, where a kilogramme (2.2 lb) of potatoes that cost 4-5 rupees (8-10 US cents) at the beginning of the year is now up to four times more expensive.
Meanwhile, onions are selling for about a fifth of the price they were at the end of last year and the price of tomatoes rose 33 percent in April alone.
Such erratic prices for perishable goods are routine in India, partly because the majority of farms depend on the variable monsoon for rains.
However, they are also due to inadequate cold storage facilities and transport bottlenecks -- that together cause up to 40 percent of the country's food harvests to rot before they get to market -- and a primitive distribution network in which many layers of middlemen take cuts, forcing prices higher.
"The storage and the distribution networks are not getting better, so whenever there is even a small supply shock or a small demand shock prices are going haywire," said Samiran Chakraborty, chief economist at Standard Chartered in Mumbai.
"It has become structural in nature, and this is precisely why everybody is calling for supply-side reforms."
Inflation was stuck close to a double-digit clip last year, forcing the central bank to keep monetary policy tight despite a slowdown in India's stellar economic growth.