Introduction
The Indian government’s decision to remove the 20% export duty on onions, effective April 1, 2025, marks a significant shift in its approach to agricultural trade regulation. Initially imposed in October, 2023 to curb domestic inflation and stabilize onion prices, the export duty was a measure aimed at restricting outbound trade to ensure local availability. However, sustained pressure from farmers, exporters, and trade bodies, coupled with shifting market dynamics, has prompted the government to revoke the duty.
While this move is expected to enhance India’s competitiveness in global onion markets, its broader implications on domestic price stability, international trade commitments, and long-term policy consistency warrant a critical analysis. This article examines the trade law basis for the decision, its technical trade aspects, and its wider economic and policy ramifications.
Legal and Regulatory Framework Governing Onion Exports
The removal of the export duty on onions is governed by India’s broader trade regulatory framework, primarily under the Foreign Trade (Development and Regulation) Act, 1992, which empowers the government to regulate imports and exports in the interest of national economic and trade policies. The Directorate General of Foreign Trade (DGFT), the primary authority overseeing India’s external trade policy, issues notifications implementing such changes, including the revocation of the 20% export duty. The legal foundation for imposing and withdrawing export duties, however, lies within the Customs Act, 1962, which grants the government discretionary power to levy taxes on exports as a tool for managing trade imbalances, protecting domestic industries, or addressing inflationary concerns. While these regulatory instruments provide India with the necessary flexibility to adjust export policies based on economic conditions, the frequent use of such discretionary interventions has raised concerns about policy predictability and stability in agricultural trade.
Within the framework of the World Trade Organization (WTO), India’s imposition of export duties must align with its obligations under the General Agreement on Tariffs and Trade (GATT). Article XI:1 of GATT generally prohibits quantitative restrictions on exports, yet Article XI:2(a) allows exceptions for temporary restrictions imposed to prevent or relieve critical shortages of essential foodstuffs. India has frequently relied on this provision to justify export bans and duties on key agricultural commodities, particularly onions, in response to domestic price fluctuations. However, the repeated application of such measures has drawn scrutiny from trading partners, who argue that India’s policies create market distortions and disrupt global supply chains.
The abrupt removal of the 20% export duty on onions, without a structured transition mechanism, reinforces India’s pattern of reactive rather than proactive trade policymaking. The frequent imposition and withdrawal of export restrictions create uncertainty for both domestic producers and international buyers, making it difficult for exporters to enter into long-term contracts or establish stable trade relationships. Investors and trading partners, particularly key onion-importing nations such as Bangladesh, Sri Lanka, and Malaysia, have repeatedly expressed concerns over India’s unpredictable trade policy shifts. The inconsistency in export regulations not only risks undermining India’s credibility as a reliable agricultural exporter but may also expose the country to future trade disputes if affected nations challenge the legality of such interventions under WTO dispute settlement mechanisms. Moving forward, India must focus on developing a structured and transparent trade policy that balances domestic food security with its international commitments, ensuring that trade interventions are well-calibrated, data-driven, and aligned with global best practices.
Technical Trade Aspects of the Export Duty Removal
The removal of the export duty directly impacts India’s positioning in global onion trade. India is one of the world’s largest onion exporters, with key markets in Bangladesh, the UAE, Malaysia, and Sri Lanka. The imposition of the duty had caused a sharp decline in exports, with outbound shipments falling by nearly 30% in the last quarter of 2023 compared to the same period in 2022. This policy reversal is expected to restore India’s market share and enhance price competitiveness, but it also raises concerns about supply chain preparedness and domestic market stability.
Logistical factors play a crucial role in determining the effectiveness of export liberalization. Indian ports, particularly those in Maharashtra and Gujarat, are expected to witness a surge in onion shipments. However, experience suggests that sudden export policy shifts often lead to bottlenecks, including delays in customs clearance and fluctuations in freight charges. Past instances of abrupt export policy changes have demonstrated that sudden shifts can overwhelm logistical infrastructure, particularly at major onion-exporting ports like Mumbai’s Jawaharlal Nehru Port Trust (JNPT) and Gujarat’s Mundra Port. When India imposed the 20% export duty in October 2023, exporters reported delays of up to 10–15 days in clearing shipments due to sudden changes in documentation requirements and the revaluation of existing contracts. Additionally, freight rates fluctuated sharply as shipping companies recalibrated pricing to account for decreased outbound volumes. The removal of the duty is likely to trigger a reverse effect, with a sudden surge in export demand potentially straining cold storage facilities, increasing congestion at inspection points, and causing temporary price distortions in freight charges as exporters rush to fulfil pending international orders.
Moreover, the Agricultural and Processed Food Products Export Development Authority (APEDA) and the Food Safety and Standards Authority of India (FSSAI) impose stringent quality controls, and any surge in exports must align with sanitary and phytosanitary (SPS) measures imposed by importing countries. Given that perishable goods like onions require careful handling, an uncoordinated increase in exports could lead to logistical inefficiencies and supply chain disruptions.
The Agricultural and Processed Food Products Export Development Authority (APEDA) and the Food Safety and Standards Authority of India (FSSAI) play pivotal roles in ensuring that Indian agricultural exports, including onions, meet both domestic and international quality and safety standards. APEDA is tasked with promoting agricultural exports, while FSSAI is responsible for regulating food safety standards within the country. These authorities work together to ensure that India’s onion exports meet the stringent quality and safety requirements of importing countries, which include regulations on hygiene, pesticide residues, and other health-related factors.
Sanitary and Phytosanitary (SPS) measures are vital for regulating the trade of perishable agricultural products like onions. SPS measures are non-tariff barriers that countries impose to safeguard human, animal, or plant life and health from potential risks. Onions, being a perishable good, can carry plant diseases or pests that could negatively affect the agriculture of importing countries. Thus, the surge in exports must align with the SPS regulations of the destination countries to prevent rejections, delays, or quarantine procedures that may reduce the quality or shelf life of the onions.
In practice, this alignment means that APEDA and FSSAI work closely to ensure that India’s onions meet the required standards. APEDA ensures that onions are free from plant diseases and pests by conducting phytosanitary inspections and issuing certifications, which confirm that the produce complies with the health and safety expectations of importing countries. Additionally, APEDA monitors that Indian farmers follow the required practices to avoid pesticide contamination, ensuring that onions do not exceed the maximum residue limits (MRLs) imposed by countries like the European Union or the United States. These regulations are essential for maintaining access to these key export markets, which have stringent food safety standards.
FSSAI plays a complementary role by ensuring the food safety of onions for export. The authority works to maintain hygiene standards during the packaging and processing stages and ensures that onions are properly labelled according to international standards. By enforcing these regulations, FSSAI ensures that onions meet the food safety norms of importing countries, which may require specific packaging, labelling, and quality checks. The agency also ensures that onions comply with international food safety standards, minimizing the risk of contamination and ensuring that the products are safe for consumption.
Moreover, the management of the cold chain is an essential aspect of meeting SPS requirements for onions. Since onions are highly perishable, maintaining the integrity of the cold chain, from the point of harvest through transportation to the exporting port and onwards to the importing country, is crucial. APEDA and FSSAI ensure that the cold chain is maintained, preventing spoilage and contamination during transit. If a surge in export volumes occurs, the agencies must ensure that adequate cold storage and transportation capacity is in place to prevent any disruptions in quality or safety.
If there is a sudden surge in onion exports, these agencies must closely monitor the quality and safety standards to ensure compliance with SPS measures. For instance, a rapid increase in exports could strain the capacity of inspection systems, delaying certifications or possibly resulting in the failure to meet the required health standards. Such failures could lead to rejections of onion shipments at importing ports, which would harm India’s reputation as a reliable exporter and undermine trade relationships with key markets.
Thus, any surge in onion exports must be meticulously planned and managed. APEDA and FSSAI must ensure that both domestic production and international demand are coordinated in a way that prevents logistical and quality control issues. Coordination between the authorities and a robust infrastructure for quality monitoring is critical to ensuring that India’s onion exports continue to meet international SPS requirements. Without this, there could be significant consequences for both the Indian agricultural sector and its trade relations with importing countries.
[Continued in the next part]
(This post has been authored by Tejas Hinder, an associate at Cyril Amarchand Mangaldas and an editor at TCLF)
CITE AS: Tejas Hinder, ‘INDIA’S REMOVAL OF 20% EXPORT DUTY ON ONIONS: A CRITICAL TRADE LAW AND POLICY ANALYSIS: Part 1’ (The Contemporary Law Forum, 31 March 2025) <https://tclf.in/2025/03/31/indias-removal-of-20-export-duty-on-onions-a-critical-trade-law-and-policy-analysis-part-1/>date of access.