India Slaps Export Tax on Onions, Impacting Global Importers
India has implemented a 40% export tax on onions due to higher domestic prices, leading analysts to consider the global impact, particularly on major importers.
The new tax, announced on Saturday, aims to ensure a sufficient domestic supply of onions and control inflation. It is effective immediately and will remain in place until December 31, according to the Ministry of Finance.
Retail prices of onions in India have increased by around 20% compared to the previous year, averaging at approximately 30.72 Indian rupees (37 cents) per kilogram on August 19. This is in contrast to 20.44 rupees during the same period last year, as reported by India’s Department of Consumer Affairs.
Reason for Export Taxes
“Heavy rainfall in July 2023 in key onion-producing regions of Maharashtra and Karnataka caused damage to stored onion crops,” explained Pushan Sharma, director of research at CRISIL Market Intelligence and Analytics, a subsidiary of S&P Global.
The Indian Meteorological Department reported significant rainfall in various parts of the country during July.
In addition, India’s inflation rate reached a 15-month high of 7.44% in July compared to the previous year, largely influenced by the surge in domestic food prices. In April, onion prices dropped by 32.2% year-on-year due to oversupply resulting from early crop maturation, according to a Mintec report published in April.
“India’s decision is likely to have a positive impact on global onion prices.”
Pushan Sharma
CRISIL Market Intelligence and Analytics
However, India is currently facing high prices for vegetables, fruits, and grains. Tomato prices in India, for instance, surged by over 300% due to adverse weather conditions. In July, the Indian government also banned the export of non-basmati white rice to ensure sufficient domestic supply.
“The government aims to control prices and ensure an adequate supply in the domestic market. The delayed monsoon has also affected the current onion crop,” said Samarendu Mohanty, Asian regional director of agricultural firm International Potato Center (CIP).
Countries like Bangladesh, Malaysia, Sri Lanka, and parts of the Middle East rely on India for onion imports, and the export tax will increase onion prices for these nations, according to HaberTusba.
India is the world’s largest exporter of onions, accounting for over 12% of global onion trade, as per data from CRISIL.
“India’s decision is likely to positively affect global onion prices,” Sharma stated.
However, he noted that the price increase is expected to be temporary until October when more onion crops are anticipated to enter the market.
Onions are a staple in Indian cuisine and are used in traditional South Asian dishes such as biryani. Alongside tomatoes and potatoes, these three vegetables are part of the nation’s consumer price index (CPI) basket. In 2019, India banned onion exports due to a reduced harvest caused by excessive rainfall.
