India is the second-largest onion producer in the world, with an annual production of about 24 million metric tons on average (2015-16 to 2021-22). The Indian onions are famous for their pungency and are available round the year. The country consumes about 13 lakh tons of onions every month, making it one of the most important vegetable crops for household consumption. However, in December 2023, India banned the export of onions till March 2024 due to rising domestic prices and potential shortages. This led to a surge in onion prices in neighbouring countries that depend on India for their onion supply. However, in a recent move, India has allowed onion exports on government-to-government basis to some countries, on recommendation of the Ministry of External Affairs.
Reasons for the export ban
The export ban was imposed by the Directorate General of Foreign Trade (DGFT) on December 8, 2023, after the onion prices started to rise in August 2023 due to low supply and high demand. The main reasons for the low supply were erratic weather conditions, crop damage due to pests and diseases, and reduced area under cultivation. The main reasons for the high demand were increased consumption during festivals, hoarding by traders and speculators, and increased exports due to favourable international prices.
The government tried various measures to curb the exports and increase the domestic availability of onions. The finance ministry imposed a 40% export duty to curtail shipments in August 2023, but it failed to have the desired effect due to under invoicing. The government then imposed a minimum export price of $800 per tonne on onions effective October 28, 2023. However, even this measure did not prevent the onion prices from soaring in the domestic market, reaching up to ₹40 per kg in some places.
The situation worsened when severe rain and hail storms damaged the crop in places such as Nashik and Ahmednagar in Maharashtra, the main onion-growing region in India. Maharashtra alone accounts for about 42.53% of the total onion production in India. The onion arrivals fell in the peak season in November, inflating prices and forcing the government to ban shipments of the bulb vegetable till March 31, 2024. The export ban was aimed at ensuring adequate availability of onions in the domestic market and keeping inflation under control. Onions have 0.6 percentage points weightage in overall inflation and 10 percentage points in the vegetable basket.
Impact of the onion exports ban
The export ban had a negative impact on both the onion farmers and the neighbouring countries that depend on India for their onion supply. The onion farmers in Maharashtra protested for two months demanding lifting of the export ban, as they faced losses due to crashing prices in the wholesale market. The prices dropped from more than ₹40 per kg to about ₹13 per kg currently in Nashik. The farmers also faced difficulties in storing their produce due to lack of proper storage facilities and infrastructure.
The neighbouring countries also faced a steep hike in onion prices due to India’s export ban. Markets in Bangladesh, Nepal, Bhutan, Sri Lanka and the Maldives reported a surge in onion prices, reaching as high as Tk 200 per kg in Bangladesh and Nu 150 per kg in Bhutan. Some vegetable vendors also said that Indian customs officials seized onions from eight trucks on route to Bhutan on Friday. The export ban also affected the bilateral relations between India and these countries, as they expressed their displeasure over India’s decision.
Relaxation of the export ban
In view of the hardships faced by the onion farmers and the neighbouring countries, India has decided to relax the export ban on a limited basis. According to sources, India has allowed exports of onions on government-to-government basis to some countries, on recommendation of the Ministry of External Affairs. The exporting agency could not be ascertained, but it is likely that it is a state-owned entity.
The countries that have been permitted to import onions from India include Bangladesh, Sri Lanka, Mauritius, Bahrain, Bhutan and Nepal, among others. The quantity of onion exports has not been disclosed, but it is expected that it will be minimal and will not affect the domestic supply or prices. The government has not taken any decision on lifting the complete ban on onion exports yet, but it may review the situation in March 2024.
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