India sets a 40% onion export duty to tackle domestic price hikes

The backstory: In Indian politics, onions have played an unexpectedly big role. Back in 2013, rising onion prices were even blamed for driving up inflation rates. Fast forward to 2018, and Prime Minister Narendra Modi has acknowledged the veg’s importance in daily life along with tomatoes and potatoes through his TOP (Tomato, Onion, Potato) initiative.

India is a major global supplier of onions, especially to neighboring countries like Bangladesh, Nepal, Malaysia and Sri Lanka. And onions are vital ingredients in Asian cuisine. After events like heavy rainfall lead to damaged crops, the prices of onions shoot up. So in 2019 and 2020, India halted onion exports to stabilize local prices, which led to shortages in neighboring nations.

The government has also taken other measures to cut food costs, including reducing duties on high-priced items like edible oils. In 2022, wheat exports were restricted, and certain rice varieties faced shipping challenges. Discussions were underway last year about removing the 40% tax on wheat imports to help domestic price pressures.

This year, India saw a 63% surge in onion exports, totaling 1.46 million metric tons. But wholesale onion prices surged by 20% between July and August, reaching 2,400 rupees (US$28.87) per 100 kilograms because people were worried that more rainfall might lower crop yields.

More recently: In July, India put a halt on non-basmati white rice sales to curb rising prices. Given that India contributes over 40% of global rice exports, this decision sent ripples through the market. Last month, India's inflation hit a 15-month peak, prompting Prime Minister Modi to address the nation and pledge action to tackle inflation ahead of national elections.

The development: India's Ministry of Finance just announced that the nation is putting a 40% export duty on onions through the end of the year.  The aim is to maintain sufficient onion supplies in the domestic market and prevent price fluctuations. In terms of numbers, onion prices in Delhi rose by 17% since the beginning of the year, peaking at 35 rupees (US$0.42) per kilo.

Key comments:

"The export duty will make Indian onions more expensive than those from Pakistan, China and Egypt. This will naturally lead to lower exports and aid in reducing local prices," said Ajit Shah, an exporter based in Mumbai to Reuters.

"Onions harvested during the summer months are rotting quickly and the new supplies are being delayed. This situation has prompted the government to take precautionary measures," said another Mumbai-based exporter to Reuters.

“With weather patterns becoming more volatile, our view is that food prices will continue to rise at a faster pace than in previous decades,” said Peter Garnry, head of equity strategy at Saxo Bank AS in Copenhagen.