Explained | Why was a 40% duty imposed on onion exports? 

The government will also be offloading its onion stocks in various wholesale markets to reduce retail prices
| Photo Credit: Vijay Soneji

The story so far: In order to increase the availability of onions in the market, especially ahead of the upcoming festive season, the government on August 19 imposed a 40% duty on the export of onions until the end of the year. Elaborating on the rationale behind the move, Rohit Kumar Singh, Secretary at the Department of Consumer Affairs, said that a “sharp rise” in its exports had been observed in the recent past. Besides imposing this duty, the government will also be offloading its onion stocks in various wholesale markets to reduce retail prices. As per the Department of Consumer Affairs’ Price Monitoring Division, on August 25, the (all-India) daily average retail price of onions was 25% higher on a year-on-year basis, at ₹32.6/kg.

Also read | Onions to be made available at ₹25 as buffer stock burgeons

What do the measures seek to achieve?

The two measures are aimed at infusing stocks into the market to stabilise prices and mitigate the demand-supply mismatch. The chain of events goes back to February, which experienced higher-than-normal temperatures. This was followed by unseasonal rainfall between late March and early-April. The two climatic occurrences corresponded with the growth cycle of the onion crop.

Onion crops are grown in India across three seasons, namely kharif, late kharif and rabi. The kharif crop is planted around July-August and is harvested between October and December; the late kharif is sown between October and November and harvested between January and March. Rabi is harvested around the end of March to May and planted between December and January. Maharashtra is the largest onion-producing State, contributing 39% of the overall production, followed by Madhya Pradesh at 17%. Other major onion-growing States include Karnataka, Gujarat, Bihar, Andhra Pradesh, Rajasthan, Haryana and Telangana. The rabi crop (of onions) contributes the most to production in a calendar year — market intelligence firm CRISIL’s report earlier this month pegged this at 70%.

As per the first advance estimates, the production of onion is pegged at 31.1 MT this year, down from 31.7 MT in 2021-22. Further, the area under production is also expected to be lower by 7% at approximately 1.8 million hectares.

What led to concerns about storage?

Onions usually grow best under mild weather conditions. The sudden increase in temperature, like in February, led to the early maturity of the crop, which resulted in a small-sized bulb. Further, the unseasonal rainfall in key growing regions during March also affected the quality of onions and reduced their shelf life from six months by around a month. As per the CRISIL report, this raised concerns about storage and induced panic selling among farmers.

Pushan Sharma, Director-Research at CRISIL Market Intelligence and Analytics, told The Hindu that each year India sees a lean period towards the end of September when rabi stocks deplete and the kharif crop is yet to arrive at the market (by early October). “However, this year, since the rabi crop has seen a reduction in shelf life, the lean season is expected to increase and the rabi stock is estimated to deplete by early September, leading to the current increase in prices,” Mr. Sharma said.

Does India export onions?

India exported about 2.5 million tonnes of fresh onions worth approximately ₹4,522 crore in 2022-23, as per data from India’s Directorate General of Commercial Intelligence and Statistics (DGCIS). Further, as per data from COMTRADE, it is the third largest exporter after The Netherlands and Mexico, which command about 15.8% and 11.7% of the market share respectively. India commands about 10%. Its major export destinations include Bangladesh, Malaysia, the UAE, Sri Lanka, Nepal, Indonesia, Qatar, Vietnam, Oman and Kuwait.

These countries are expected to be particularly impacted by the 40% duty.

What lies ahead?

Last week, the government said that the buffer stock has been enhanced to five lakh metric tonnes from three lakh metric tonnes. More importantly, it was informed that onions from the buffers would be made available to retail consumers at a subsidised rate of ₹25/kg through retail outlets and the National Cooperative Consumers’ Federation of India (NCCF) from August 21. As per the government, the measures for targeted release, procurement and imposition of export duty would “benefit the farmers and consumers by assuring remunerative prices to the onion farmers while ensuring continuous availability to the consumers at affordable prices.”

• In order to increase the availability of onions in the market, especially ahead of the upcoming festive season, the government on August 19 imposed a 40% duty on the export of onions until the end of the year. Besides imposing this duty, the government will also be offloading its onion stocks in various wholesale markets to reduce retail prices.
• The two measures are aimed at infusing stocks into the market to stabilise prices and mitigate the demand-supply mismatch.
• India is the third largest exporter after The Netherlands and Mexico, which command about 15.8% and 11.7% of the market share respectively.