India has traditionally been the the world’s biggest palm and soybean oil importer. Over 70 percent of the edible oils consumed by the people of our country are now imported. Back in 2001-2002 we were importing only about 44 percent of the total demand. Even after accounting for increase in demand, this can only mean that we have failed to support domestic producers and prefer imported edible oils. Yesterday on 11 August, 2017, the government of India announced its decision to hike the import duty on crude and refined palm oil (one of the edible oils used commonly in India). A notification by the Central Board of Excise and Customs says that import duty on the crude palm oil (which is the raw material for refineries in India) will go up from 7.5 percent to 15 percent while the duty on the finished (refined) palm oil will now go up from 15 percent to 25 percent. Palm oil is t0 the only edible oil to have a hike in import duty. The duties on the import of crude soya oil and crude sunflower oil have also risen from 12.5 percent to 17.5 percent.
Why Is A Hike In Import Duty Necessary?
Oilseed production in the country had seen a considerable dip over the past two years. Droughtlike conditions in some of the major oilseeds growing states of India – Gujarat (Groundnut), Rajasthan, Madhya Pradesh, and Haryana (Rapeseed, Soyabeen, and Mustard) Karnataka, and Maharashtra (Sunflower) had caused much anguish to the farmers. This year, thanks to the timely monsoon, production seems to be rising once more. This, however, has failed to translate into good news for Indian farmers and oil producers. The prices of edible oil in the country have crashed below MSP (Minimum Support Price).
MSP is the price that the government of India offers to pay the farmers and procure their produce in order to protect them from a sharp fall in prices. In the event of a bumper crop and price collapse, the government decreed MSP is a tool that prevents distress sales by farmers. Producers of oilseeds, though assured of the MSP, do not stand to profit much by such government intervention.
In simple terms this means that there has been a boom in oilseed production and prices are low. The domestic oil production industry is suffering due to a preference for imported oils and the government decided to step in and intervene by discouraging exports.
About 14.5 million tonnes of vegetable oil is imported into India each year. This includes edible and non-edible oils. Most of the cheap vegetable oil imports come from Indonesia and Malaysia. By June this year, however, imports spiked by 15 percent to 1.34 million tonnes. This rang an alarm bell and an inter-ministerial panel was constituted under the Finance Minister Arun Jaitley to review the rising import scenario and to suggest guidelines for boosting the domestic industry. The recommendations of this panel were submitted to a committee that in turn looked at the import duties currently imposed on the import of cheap edible oil. Finally the Central Board of Excise and Customs came up with the decision to hike import duties on all crude and refined edible oil imports to bring about price parity between the domestic produce and imports while still allowing the end user the choice.
Government’s Move Receives Appreciation
The government’s decision to boost the domestic cooking oil production industry was welcomed by all. The Industry body, the Solvent Extractors Association (set up in 1963) has regularly expressed concern over India’s growing dependence on imports. They expressed happiness over the hike in import duties while stressing the need for further reforms. While the current level of hikes may be just enough to support the industry back home, a difference of 12.5 to 15 percent between imported crude edible oil and refined oil will support oil refineries in the country, representatives of the association said.
Commodities Market To Move Again
Over the past few days, uncertainty loomed over edible oils in the commodities market over the past few weeks. Trading in crude palm and soya oil at the NCDEX had fallen considerably in June and July 2017. It looks likely that this scenario will change now and we may witness some active trading in these commodities starting Monday. It also looks likely that two other agro commodities, sugar and wheat, may also be considered for import duty revision soon.