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Business News/ Economy / Ban on onion exports, curbs on wheat stocks as govt. battles rising food prices

Ban on onion exports, curbs on wheat stocks as govt. battles rising food prices

The measures are aimed at improving availability of the staples in the country and lowering their prices, with food contributing significantly to India’s stubborn inflation

Onion prices were up 58% in November, while wheat prices were at an eight-month high in October. (Bloomberg)Premium
Onion prices were up 58% in November, while wheat prices were at an eight-month high in October. (Bloomberg)

The government has banned exports of onion and imposed additional limits on stocking of wheat as it seeks to augment availability of these key staples and check rising food prices ahead of the general election next year.

Onions, a politically triggering vegetable when expensive, have been placed under the ‘prohibited’ category with immediate effect and until March, the Directorate General of Foreign Trade said in a notification amending its export policy.

As for wheat, the government has significantly lowered stock holding limits for wholesalers, retailers and processors with immediate effect. “This has been done to prevent artificial scarcity and curb hoarding," food secretary Sanjeev Chopra said at a press briefing.

Onion prices were up 58% in November both because of festive demand and lower output during the monsoon sowing, or kharif, season following erratic rainfall and extended dry spells. Wheat prices were at an eight-month high in October owing to festive demand and limited supplies.

Barclays recently estimated that India’s retail, or consumer price index (CPI)-based, inflation may have risen above the Reserve Bank of India’s tolerance limit of 6% in November, from 4.87% in the preceding month, driven primarily by higher food prices.

On Friday, RBI Governor Shaktikanta Das said that notwithstanding the progress made on lowering inflation, the regulator’s 4% target was yet to be reached. The Reserve Bank kept its inflation forecast unchanged, projecting CPI-based inflation at 5.4% for FY24.

“These stringent and somewhat abrupt measures indicate a knee-jerk approach rather than a well-thought-out strategy," said Ashok Gulati, distinguished professor at the Indian Council for Research on International Economic Relations. 

“These abrupt measures will impact farmers’ income adversely," he added, calling for a “more rational and dependable trade policy that balances the interests of producers and consumers…"

Retail vendors in the Delhi-National Capital Region on Thursday quoted onion prices at 60-80 a kg. The all-India average retail price increase on Thursday was nearly 98% year-on-year, showed data from the consumer affairs ministry.

“The prevailing supply crunch in the market owing to the early depletion of stocks from the 2022-23 rabi season and estimated lower output from kharif 2023, coupled with the festive demand, resulted in a synergistic impact on onion prices leading to the rise," Pushan Sharma, director-research, CRISIL Market Intelligence and Analytics, said in a recent report.  

“Additionally, the unseasonal rainfall last month in Maharashtra, Gujarat, Rajasthan, and Madhya Pradesh is estimated to have caused significant damage to the standing crop of late kharif onion, which is expected to further tighten the onion supply in the market," Sharma said, adding, “The prices are expected to remain firm until the arrival of rabi onions from February."

Onion exports will be allowed in specific conditions, including if the government has agreed to requests from other countries, and if loading of shipments had begun before the notification.

As for wheat, the stock limit has been halved to 1,000 tonnes for wholesalers, and for retailers to 5 tonnes. Big retail chains can hold 5 tonnes of wheat in each depot, and a total of 1,000 tonnes overall, food secretary Chopra said. 

Processors can hold 70% of their monthly installed capacity multiplied by the remaining months of FY2024. Traders will be allowed 30 days to reduce their stocks to the revised limits.

Apart from these measures to boost domestic availability and keep food prices under check, the government has taken various steps including under the Open Market Sale Scheme (OMSS). 

It has allocated 10.1 million tonnes (mt) of wheat at a subsidised price of 2,150 a quintal for calibrated release into the domestic open market by the Food Corporation of India (FCI) through weekly e-auctions. 

An additional 2.5 mt can be offloaded under OMSS between January and March depending on requirement, the government said in a statement.

So far, 4.46 mt has been offloaded by FCI to processors through weekly e-auctions, which has increased availability of wheat in the open market at affordable prices, it said. 

The government has also increased the weekly quantity of wheat offered through e-auction by FCI from 300,000 tonnes to 400,000 tonnes with immediate effect.

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Puja Das
Puja Das is a New Delhi based policy reporter covering food, farm, fertiliser, water, and climate policies for Mint. Puja reports on farmers' distress and how the agriculture sector is impacting India's rural economy and policy initiatives to help meet the pledges made at COP27. Puja holds a post-graduation degree in Broadcast Journalism from the Indian Institute of Journalism & New Media, Bangalore.
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Published: 08 Dec 2023, 04:53 PM IST
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