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Why India banned onion exports

Onion export ban: One of the reasons for the prohibition is reduction in supply due to heavy rains in many parts of the country, as well as India's retail inflation

twitter-logoBusinessToday.In | September 15, 2020 | Updated 15:21 IST
Why India banned onion exports

In a notification on Monday, the Directorate General of Foreign Trade said that export of onions in forms other than cut, sliced or powder has been banned. "The export on all varieties of onions is prohibited with immediate effect," stated the notification. The prohibition excludes Bangalore rose onions and Krishnapuram onions.

One of the reasons for the prohibition is reduction in supply due to heavy rains in many parts of the country, as well as India's retail inflation. Heavy rains in August washed out most of the onion crop in Karnataka that were almost ready to hit the markets in September. Rains in Madhya Pradesh, Gujarat and parts of Maharashtra also affected onion crops. This led to dwindling supply but rising demand. Other countries including Sri Lanka and Bangladesh also have year-round demand, adding to the pressure.

There have been an increase in rates of the bulb at Lasalgaon market with average price of onions increasing by almost 100 per cent between March and September. Prices in Niphad district in Nashik have also doubled from Rs 1,500 per quintal in March to Rs 3,000 per quintal in September.

Moreover, India's retail inflation could also be another trigger. While in August, inflation eased to 6.69 per cent from July's 6.73 per cent, it is still well above RBI's target of 6 per cent.

The prohibition comes months after the government altered the Essential Commodities Act, 1955, to impose stock limit and movement restrictions on essential commodities including food grains, edible oilseeds, potatoes, and onions only in extreme conditions such as war, extreme price rise and natural calamity. In horticulture produce, if there is a price rise of 100 per cent of the commodity in the preceding 12 months then that could be a cause for the prohibition.

Last year, India had to import large volumes of onion to meet supply deficit and reduce the hike in prices. Like this year, the government had imposed a ban on exports and restricted the amount that could be stored by retailers and wholesalers. The price jump was due to a 26 per cent decline in domestic crop production during kharif and late-kharif seasons due to late monsoon. Minister of Consumer Affairs, Food and Public Distribution Ram Vilas Paswan stated in Lok Sabha that onion prices increased by over 400 per cent after March from average retail rate of Rs 15.87 per kg to Rs 81.9 per kg in December.

Also read: Govt bans export of onion with immediate effect

Also read: WPI inflation rises to 0.16% in August as food, manufactured items get costlier

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