"The rate at which MEIS benefits for exports of fresh and chilled onions is granted under the foreign trade policy has been made zero from the current 10 per cent with immediate effect," the Directorate General of Foreign Trade (DGFT) said in a notification.
In December, the government had doubled the rate of incentives to 10% under the scheme to boost shipments and ensure better returns for farmers.
The price of the politically sensitive vegetable has risen significantly following robust exports amid drought-like conditions in key growing states.
Wholesale prices at Lasalgaon in Maharashtra, Asia's largest wholesale market for onion, were up a huge 48% month-on-month at ₹13.3 per kg on Tuesday, according to data from National Horticultural Research and Development Foundation.
In the national capital, onion has been retailing at 20-25 per kg depending on the variety.
India exported 1.95 mln tn of onions during Apr-Feb, up 39% from a year-ago period, according to data from Agricultural & Processed Food Products Export Development Authority.
Meanwhile, key onion producing states -- Maharashtra, Karnataka and Andhra Pradesh -- have been struggling with drought conditions this year after poor monsoon rains in 2018.
According to the second advance estimates, onion production in the 2018-19 crop year ending June is estimated at 23.28 mln tn, lower than 23.62 million tonne projected in the first advance estimates. Most market participants expect output to fall further as Maharashtra, one of the largest producers of the vegetable, has been facing acute water shortage.
Farmers are worried that water shortage will have an adverse impact going forward. Indian farmers sow onions thrice in a year - kharif (summer), late kharif and rabi (winter).
The National Agricultural Cooperative Marketing Federation (NAFED) has been asked to procure 50,000 tonne of onions this season, as the federation has mostly sold last year’s procured stock, which has so far managed to keep prices in check.
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