India’s ban on onion exports from September 14 has resulted in a sharp spike in prices in its largest market, Bangladesh, besides Sri Lanka, Nepal, Bhutan and Maldives. Ironically, while Bangladeshis are teary-eyed by costlier onion prices, their government has granted special permission for 1,450 tonnes of the coveted hilsa fish to be exported to India, despite a ban since 2012, ahead of the forthcoming festive season, as a goodwill gesture. 

The onion ban was motivated by the surge in domestic prices triggered by excessive rains in August that damaged the standing crop that was ready to be harvested in September. This measure is intended to cool off prices domestically.

An upset Bangladesh 

Bangladesh has appealed to the Indian government to rescind the ban so that exports resume. Significantly, the state minister for foreign affairs M Shahriar Alam reminded India of an “unofficial pledge” to Bangladesh of a continual supply of onions from the second largest onion growing country in the world. The “unwritten” understanding was that New Delhi would inform Dhaka before any ban was imposed.

India also suspended exports on September 29 last year prompting Prime Minister Sheikh Hasina to then forcefully state that it would have been better if India had alerted Bangladesh in advance so that it could source from other countries.

Bangladesh is naturally upset as it is heavily dependent on onion supplies from India. This neighbor alone accounted for 22.5 percent of India’s exports of fresh onions of 1.15 million metric tonnes in 2019-20. The proximate cause for suspending onion shipments is also a sudden spike in external demand from the neighbouring country during the current financial year. 

During April-June, onion exports to Bangladesh surged three-fold to 185,899 metric tonnes worth USD 32 million over the corresponding three-month period in 2019-20 according to Agricultural and Processed Foods Products Export Development Authority (APEDA).

Booming external demand may well have been the saviour of onion farmers in India, especially in the state of Maharashtra that accounts for 28 percent of India’s output. Onion prices were languishing when the nationwide lockdown came into effect to fight Covid-19 in March. The produce was also rotting as institutional demand from hotels, restaurants totally collapsed. Farmers from the Nashik--Manmad-Kopergaon belt approached the railways to transport onions to Bangladesh. With the necessary clearances in place to open up borders, the Indian Railways transported over 100,000 tonnes of onions to that country from May, according to The Print. 

South Asian onion importers hit

Besides Bangladesh, India’s onions are also in demand in Sri Lanka, Nepal, Bhutan and Maldives. These five South Asian countries almost 50 percent of India’s exports of fresh onions in 2019-20. Not surprisingly, the suspension of exports raised onion prices substantially in these countries. In Nepal, the price went by up 25 percent within a day. In Bangladesh, prices jumped by more than 50 percent a day after the ban kicked in. Prices are bound to fall when onion supplies from Turkey and Egypt reach Bangladesh’s  Chittagong port in early October.  

In Bhutan the agriculture ministry urged local farmers to step up onion production to meet any future onion shortage following the Indian export ban.

Naturally, all eyes will be on how soon the Indian government lifts the ban. At stake is its credibility as a reliable supplier. Building export markets take time and effort, which can be undone by knee-jerk policy decisions. Onions may just be a singular example but if unwritten undertakings are violated, the saga of bans exemplify a larger story of how a trust deficit ensures that trade within South Asia remains perhaps the lowest in the world. Trust promotes trade and trade fosters trust and interdependencies according to World Bank’s report, A Glass Half Full: The Promise of Regional Trade in South Asia. 

Case for greater regional cooperation 

The restoration of trust will certainly improve India’s trading relationship with Bangladesh as also the rest of the region. There is no warrant in persisting with the export ban on onions as domestic supplies are bound to improve. Growers in Maharashtra will harvest their new onion crop in early November to January which could considerably ease supplies and lower domestic prices. As demand from Bangladesh and Sri Lanka is steady all-year-round, farmers will definitely get better price realisations through export. A ban is too much of a blunt instrument in ensuring that domestic producers and consumers in neighbouring countries bear the brunt needlessly.

As the dominant regional power, India has the responsibility to ensure trade within South Asia acquires critical mass. No doubt, there is a flurry of recent measures to improve the physical infrastructure for trade. Better connectivity is necessary for more flows of trade and commerce. The region has nearly a quarter of the global population and half the number of the world’s poor. The case for greater regional cooperation, if not integration, is compelling. 

India must ensure greater access for the goods of its neighbours, besides enhancing the reliability of its own supplies. This will enable them to acquire a greater stake in the opportunities provided by its economy.

(The writer is an economics and business commentator based in New Delhi. His views are personal)