· India has imposed a 40% export tax on onions due to higher domestic prices.

· Retail onion prices in India have risen about 20% year-on-year, averaging about INR30.72 (37 cents) per kilogram on August 19th.

· India is the world's largest exporter of onions, accounting for more than 12% of global onion trade, according to CRISIL.

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India has imposed a 40% export tax on onions due to rising domestic prices of the vegetable, and analysts are considering the global impact, especially on major importing countries.

The new levy, announced Saturday, is aimed at securing domestic supplies and curbing inflation, and will take immediate effect until Dec. 31, according to the country's finance ministry.

Retail prices of onions in India have risen about 20 percent year-on-year, averaging about 30.72 Indian rupees (37 U.S. cents) per kilogram on Aug. 19, compared with 20.44 rupees per kilogram a year earlier, data from India's agriculture ministry showed.

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Reasons for export tax

"High rainfall in July 2023 in the major producing regions of Maharashtra and Karnataka resulted in damage to the stored onion crop," said Pushan Sharma, director of research at Market Intelligence & Analytics, CRISIL, a subsidiary of Research India.

According to the India Meteorological Department, some parts of India were hit by rainfall in July.

Meanwhile, India's inflation figures rose 7.44% year-on-year in July, a 15-month high, mainly due to soaring domestic food costs. According to a Mintec report released in April, onion prices fell 32.2% year-on-year in April due to oversupply as a result of early crop maturation.

But now the South Asian country is struggling to cope with high prices of vegetables, fruits and grains. Earlier, the price of tomatoes in India soared more than 300% due to bad weather. The Indian government also banned the export of non-basmati white rice in July to ensure adequate domestic supply.

"The government wants to control prices and ensure adequate supply in the domestic market. The late arrival of the monsoon has also affected the current onion crop," said Samarendu Mohanty, regional director for Asia at agriculture firm Center for International Potatoes (CIP).

He told CNBC that Bangladesh, Malaysia, Sri Lanka and parts of the Middle East depend on India for onion production, and that the tax will raise onion prices in those countries.

India is the world's largest exporter of onions, accounting for more than 12 percent of global onion trade, according to data provided by CRISIL.

"Global onion prices may get a positive price cue due to India's decision," Sharma said.

However, he noted that the price rise is expected to be short-lived until October, when more onion crop is expected to enter the market.

Onions are an essential staple in India, used in traditional South Asian dishes such as biryani. The three vegetables, along with tomatoes and potatoes, form part of the country's Consumer Price Index basket. In 2019, India banned onion exports due to reduced harvests caused by excessive rainfall.

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Other Trade Data References to Onion:

1. Is Onion Export Promising? Unveiling the Potential

2. Fastest Growing Onion Exporter In 2023: India

3. India Imposes 40% Export Tax On Onions To Quell Price Hikes