India has imposed a 40% export tax on onions to address the higher domestic prices of this vegetable, raising concerns about the global impact, particularly for major importers.

The new tax, announced on Saturday, aims to ensure sufficient onion availability in the domestic market and control inflation. It is effective immediately and will remain in place until December 31, as stated by the Ministry of Finance.

Retail prices of onions in India have increased by around 20% compared to the previous year, with an average price of 30.72 Indian rupees (37 cents) per kilogram on August 19, according to data from India’s Department of Consumer Affairs.

Pushan Sharma, director of research at CRISIL Market Intelligence and Analytics, attributes the rise in onion prices to heavy rainfall in key producing regions of Maharashtra and Karnataka during July 2023, which led to damage to stored onion crops.

The Indian Meteorological Department confirms that several parts of India experienced significant rainfall during July.

Inflation in India reached a 15-month high of 7.44% in July compared to the previous year, primarily due to the surge in domestic food costs. As reported by Mintec in April, onion prices had dropped by 32.2% year-on-year due to oversupply caused by early crop maturation.

India is currently grappling with high prices of vegetables, fruits, and grains. Adverse weather conditions caused tomato prices to surge by more than 300%. In July, the Indian government also banned the export of non-basmati white rice to ensure sufficient domestic supplies.

Samarendu Mohanty, Asian regional director of agricultural firm International Potato Center (CIP), stated that the late onset of the monsoon has also affected the current onion crop. He added that Bangladesh, Malaysia, Sri Lanka, and parts of the Middle East rely on India for onions, making the tax increase the prices of onions for these countries.

India is the largest exporter of onions globally, accounting for over 12% of the global onion trade, according to data from CRISIL.

Sharma believes that global onion prices will be positively influenced by India’s decision. However, he expects the price hike to be temporary, lasting 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 like biryani. Alongside tomatoes and potatoes, these three vegetables form part of India’s Consumer Price Index (CPI) basket. In 2019, India banned onion exports due to reduced harvest caused by excessive rainfall.