A workers holds harvested onions for a photograph on a farm near Chandwad, Maharashtra, India, on Wednesday, Oct. 23, 2013. Onion prices in India may extend a record rally as heavy monsoon rains delay harvests and worsen a shortage, potentially accelerating food inflation in Asia’s third-largest economy. Photographer: Kuni Takahashi/Bloomberg

Kartik Goyal Mumbai

India’s leading political parties are taking aim at a decades-old practice of collusion among traders at produce markets that policymakers say helps fuel inflation.

At Mumbai’s Vashi market last month, middleman Nitin Parakh put a towel over his hand as he began an onion auction. Buyers placed bids by reaching under the towel and squeezing his hand: the index finger has a value of 100 rupees (R18), the thumb and other fingers each indicate 10 rupees.

“We know secret bidding is illegal and we should actually do open auctions,” said Parakh, one of 450 traders licensed to sell onions and potatoes at Vashi. “This practice has been in vogue for many, many years.”

The ruling Congress party put trader rackets on its priority list after surging prices for onions, an Indian staple food, contributed to local election losses late last year. With a national election next month, the opposition Bharatiya Janata Party (BJP) is also pledging to chip away at the margin middlemen enjoy.

“Secret bidding fuels inflation as there is collusion between the middlemen and wholesalers: they pay lower prices to farmers and sell it at a higher price to retailers,” said AV Manjunatha, who co-wrote a report for the government on onion prices in 2012. “You need to have political will to bring about the changes.”

India’s consumer price inflation of 8.1 percent is the highest of 18 Asia-Pacific economies and in January the central bank cited agriculture market cartels for exacerbating price spikes as it raised the benchmark repo rate to 8 percent.

Rahul Gandhi, who is leading the Congress party’s re-election bid, has already ordered rule changes to enable buyers to buy directly from farmers in 12 states under his control.

The BJP would change the system to benefit farmers more than middlemen, it said. Narendra Modi, the party’s prime minister candidate, said in January that he would establish a real-time database to track agricultural prices.

While some of India’s 28 states have amended laws to allow farmers to sell directly to retailers, others have resisted change. The process stalled in Maharashtra, home to Vashi market in India’s financial capital, where Congress has held power since 1999.

“There is resistance from traders as they are afraid they might lose their livelihood,” Deepak Taware, the director of agricultural marketing in Maharashtra, said. “It looks like it won’t happen very soon.”

Parakh, the middleman, said: “It will be very, very suicidal for any party to change the system unless they build a lot of infrastructure to enable farmers to sell their produce. The political parties also know this. That’s why they are not in a hurry.” – Bloomberg