India's export tax on onions may lead to price hike in global markets
As India introduced a 40 per cent export tax to combat higher onion prices, analysts have said that New Delhi's protective measure to control the retail prices of this staple food item will lead to an increase in prices in the countries where onion is imported from India.
The newly announced tax, effective until December 31, is aimed at stabilising domestic supply and curbing inflation, according to the Ministry of Finance.
Retail prices for onions in India have surged around 20 per cent year-on-year.
The heavy rainfall in July 2023 across critical onion-producing regions like Maharashtra and Karnataka led to damage in stored onion crops, according to Pushan Sharma, director of research at CRISIL Market Intelligence and Analytics, a subsidiary of S&P Global, CNBC reported.
India's July inflation reached a 15-month peak of 7.44per centprimarily due to higher domestic food costs.
The world's fifth-largest economycurrently grapples with higher prices of vegetables, fruits, and grains, with tomatoes seeing a more than 300 per cent surge due to unfavourable weather.
The Indian government also suspended non-basmati white rice exports in July to ensure ample domestic supplies.
India's export control on onions: Which countries will be impacted?
The export taxes will result in increased onion prices for Bangladesh, Malaysia, Sri Lanka, and parts of West Asia, as these countries rely on India for their onion supply.
India is the world's primary onion exporter, contributing over 12 per cent to the global onion trade, according to thedata from CRISIL cited by CNBC.
Also read |Onion price hike: India imposes 40% duty on onion exports
This price hike, however, is likely to be short-lived, lasting until October when more onion crops enter the market.
Onions hold a significant role in India's cuisine.
They, along with tomatoes and potatoes, are vital components of the country's Consumer Price Index (CPI) basket.
India had previously banned onion exports in 2019 due to reduced harvests caused by excessive rainfall.
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