Government impose 40 % export duty on Onion

The government of India has imposed an export duty of 40% on the export of onion from India with immediate effect. The government announcement  on 19 August 2023 seeks to restrict the export of onion from India so as to control the price of onion which is expected to rise in the near future.

According to the government notification  the export duty on Onion will be in force till 31st December 2023. The government is  trying to control retail inflation in the country which has increased to a 15-month high of 7.44% in July, led by the food prices.

Reason for Increase in price of Onion 

The onion production in the country has been adequate but the stock of the onion has been damaged due to heavy rains in Maharashtra and Karnataka. Maharashtra and Karnataka  are a major supplier of onion to the rest of the country during the kharif season .

Heavy rains have created an ideal condition for breeding of fungus which has substantially damaged the  stored onion, leading to wastage  of onion. This has given rise to fears that during the coming festive season the prices of the onion will shoot up.

Why does the price of a product/onion increase? 

According to  classical economists, product prices rise when  there is a mismatch between demand and supply .  The mismatch could be either due to (a) Increase in the demand  or (b) decrease in the supply of the product .

To control the price either the production of the product has to be increased  or the supply has to be increased .

Production of onion cannot be increased overnight so the government has an option to increase the supply of  the product .

Impact of increase in Export duty

Production of onion cannot be increased overnight so the government has an option to increase the supply of  the product .

The product in the example is onion. The supply can be increased either by importing the onion  from abroad or by  stopping the export of onion from the country .  The export of any goods from the country means that the product available in the country will be less.  For example if there is 100 kg of onion in the country and 10 kg has been exported then  only 90 kg of onion will be available in the country  for consumption.  This could lead to a shortage of onions in the country. 

To discourage the export, the government can either ban the export of the product like it did regarding the non-basmati rice . 

Another way is to make the Indian product very costly so that the foreigners do not buy it. The price of the product can be raised by the government by imposing tax on the product . Here the government has imposed a tax of 40 % ,hence the price will become costlier by at least 40% for the foreigners buying Indian Onion. 

Being costly the foreigner will not buy the Indian onion and the onion will remain in India . This will increase the availability of onion In India .  

Thus according to economic theory if the supply of the product is increased and it is equal to the demand of the product in the market then the price of the product will not rise. 

Production of Onion In India 

India is the second largest onion producing country in the world after China. 

Season ,Harvesting and production of Onion In India 

 In India onion is sown in almost all the states of India  It is harvested thrice a year . 

Source : Union Ministry of Agriculture and Farmer Welfare.

The harvest of Rabi is most important as it contributes nearly 72 -75% of national production and is harvested during March to May months.  

The shelf life of Rabi harvest is highest and storeworthy whereas the Kharif and Late Kharif crop is for direct consumption and not storeworthy.

Production and Major producing states  

The estimated production of Onion during 2022-23 is around 318 Lakh metric tonnes  surpassing last year's production of 316.98 Lakh metric tonnes.  

• Maharashtra is the leading producer with a share of around 43%, 

• Madhya Pradesh 16% , 

• Karnataka & Gujarat contribute around 9% of national production. 

Export of Onion from India 

There is a lot of demand for Indian Onions in the world. The country has exported 2,525,258.35 Metric tonnes of fresh onion to the world, worth Rs. 4,522.79 crores/ 561.38 USD Millions during the year 2022-23.

Major Export Destinations (2022-23) :Bangladesh, Malaysia, United Arab Emirates, Sri Lanka, Nepal and Indonesia.

Source : APEDA