Onion price crisis: Government responds with 40% export duty

The government on Saturday imposed a substantial 40 per cent export duty on onions, effective until the end of 2023, move to address the skyrocketing prices. The announcement concerning onions, a crucial kitchen staple, comes amid growing concern for households across the nation as vegetable prices led by tomatoes reached astronomical prices.

In a bid to alleviate the mounting burden on household budgets, the government has imposed a 40 per cent export duty on onions hoping to stabilise prices of essential vegetables amidst worrisome supply-side challenges. The government moves comes on the back of unseasonal rain in the states that predominantly provide quality onions, causing some of the onions in cold storage to be damaged adding to the risk that onion prices could skyrocket within the few next months.

Recent data, released on August 14, 2023, revealed that India's headline retail inflation had surged to a 15-month high of 7.44 per cent in July. The primary driver behind this alarming increase was the substantial rise in tomato prices. Experts are now warning that unless swift action is taken, onion prices may follow a similar upward trajectory, further exacerbating the financial strain on ordinary households.

Analysts attribute the alarming surge in onion prices to speculative buying, triggered by reduced onion acreage during the monsoon season and the depletion of carry-forward rabi (winter crop) stocks. This surge in essential vegetable prices, including tomatoes and onions, has had a ripple effect, making other food items such as cereals, pulses, and milk increasingly unaffordable for households.

As it faces flak over the crisis, the government has chosen a multi-faceted approach intended to restore stability to the market. Measures taken include the prohibition of non-basmati white rice exports, among others. Additionally, the government is exploring various avenues for onion distribution, including e-auction, e-commerce platforms, and discounted rates offered through state-owned retail outlets, consumer cooperatives, and corporations.

Presently, the government maintains a strategic stockpile of 3 lakh tonnes of onions under the Price Stabilisation Fund (PSF) to tackle significant price fluctuations during lean supply seasons. Recent government data indicates a slight uptick in onion prices, with the all-India retail price standing at Rs 27.90 per kilogram on August 10, representing a marginal increase of just over Rs 2 per kilogram compared to the previous year.

It's important to note that the rabi onion, harvested from April to June, constitutes a substantial 65 per cent of India's onion production, meeting consumer demand until the Kharif crop is harvested in October-November. 

The ‘TOP’ trio, consisting of tomatoes, Onions, and potatoes, holds critical importance for policymakers due to their ubiquitous presence in households of varying economic strata. A research report by the Reserve Bank of India (RBI) underscores that any escalation in the prices of these commodities contributes significantly to overall vegetable inflation, thereby impacting the broader inflation rate in the country. This, in turn, has the potential to affect the financial stability of ordinary Indian households.

In response to the escalating prices, the Department of Consumer Affairs has initiated the release of onion stocks from the 3-lakh metric tonne buffer created this year. A meeting led by Rohit Kumar Singh, Secretary of the Department, in collaboration with the Managing Directors of NAFED and NCCF, has outlined the modalities for the disposal.

The release of onion stocks will primarily target markets in states or regions where retail prices surpass the national average, and where price increases over the previous month and year breach predefined threshold levels. The government is also exploring options such as e-auction and retail sales on e-commerce platforms.

The quantity and pace of onion disposal will have to be meticulously monitored, with the primary objective of ensuring the availability of affordable onions to consumers. Discounted rates for state governments to sell onions through their retail outlets, cooperatives, and corporations will also need to be considered as part of the comprehensive strategy.

In the current year, a total of 3 lakh metric tonnes of onions have been procured for the buffer, with the possibility of expanding this quantity if circumstances demand. Central nodal agencies NAFED and NCCF procured 1.50 lakh metric tonnes each of rabi onions in June and July from Maharashtra and Madhya Pradesh.

In a pioneering initiative this year, a pilot project in collaboration with the Bhabha Atomic Research Centre (BARC) irradiated approximately 1,000 metric tonnes of onions, enhancing storage capabilities in controlled atmospheric conditions.

Over the past four years, the government has expanded its onion buffer, tripling its size from 1 lakh metric tonnes in 2020-21 to 3 lakh metric tonnes in 2023-24. This buffer has played a pivotal role in ensuring a stable supply of onions to consumers at reasonable prices, thereby maintaining price stability.

In the face of mounting inflation and growing concerns over essential vegetable prices, the government's decisive actions aim to provide much-needed relief to Indian households, especially those with tight budgets. The focus is on enhancing the availability and affordability of onions in the domestic market, ensuring that this essential vegetable remains accessible to all.