Veteran trade insiders say the reason why exports are still continuing in high volumes is under invoicing of onion prices by exporters, as that allows them to pay lower duty.
Export duty is calculated on the value of onions shown in the invoice by the exporter. According to traders, the current free-on-board (FoB) cost of Indian export quality onions is $700-750 per tonne. However, the invoicing is taking place even at $325 per tonne. At 40%, the duty to be paid on one tonne of onion having an invoice of $750 per tonne is $300, while the duty on an invoice of $325 per tonne is only $130. No wonder Indian onions are selling cheaper in Dubai than in India.
Looking at the dwindling supplies of onion in India, the global shortage of onions and taking advantage of under invoicing, traders in Bangladesh have stocked substantial quantities of onions.
This year, key onion exporters like Egypt and Turkey have already banned exports. Onion production in Pakistan is lower, while Holland has also resorted to imports.
To prevent under-invoicing in export of basmati rice, the government had imposed a floor price of $1,200 per tonne. However, as the exporters claimed that an insignificant quantity of basmati rice is priced above $1,200, the government had to reduce the floor price.Similarly, the onion exporters had requested the central government to fix a floor price to prevent under invoicing. The reason why exporters had made this request was that they had sensed the possibilities of impending shortages, which could lead to the government taking drastic measures about exports.Due to frequent onion export bans imposed by the Indian government in the past, India’s share in some of the key export markets has reduced from 80% to as low as 30% in some countries.
Had the exporters paid the duty of 40% on the actual cost of onions, the exports should have come down 15% to 20% of their volume before the duty was imposed. However, as per trade estimates, the present volume of exports is at least double that of what it should have been by now.
