EXCLUSIVE | Duty cuts on edible oil likely before festive season

© Subhayan Chakraborty
EXCLUSIVE | Duty cuts on edible oil likely before festive season

With global supply shocks not abetting and domestic demand inching upwards, the government is planning a series of further duty cuts on edible oil imports as retail prices continue to remain high.

Two more duty cuts may be announced next month before the new crop arrives in November, sources said. “Our discussions with stakeholders are continuing, but the government has kept enough policy room for two more cuts which may be necessitated next month. This is based on existing price and supply trends,” a senior official said.

On Saturday, import duties for a wide range of edible oils were cut for the second time in less than a month. As a result, the effective import duty on crude palm oil, crude soya oil and crude sunflower oil is now 24.75 percent, whereas effective duty on refined palm oil, refined soya oil and refined sunflower oil will be 35.75 per cent.

Twenty days before that, the government had brought down the basic customs duty on crude soya oil and crude sunflower oil from 15 percent to 7.5 percent, and duty on refined soya oil and refined sunflower oil from 45 percent to 37.5 percent.

Duties had been slashed in June as well. However, all these cuts have, till now, been made with a cut-off date of September 30. “The idea was to rein in prices before the offset of the festive season, beginning in October. But the date may be extended,” the official said.

Oil intake rising

Global prices of edible oils have risen due to a host of factors. As reported by Moneycontrol, a combination of bad weather, labour shortage and freight logistics issues due to COVID-19 have plagued large exporters such as Malaysia and Indonesia (palm oil), Argentina (soyabean oil) and Ukraine and Russia (sunflower oil).

That has been bad news for India, which remains the largest importer of vegetable oils, globally. Overall, the import of various kinds of edible oils, along with by-products, rose from $9.87 billion in FY20 to $11.3 billion in FY21, despite the ongoing pandemic. However, experts say this was due to a rise in prices and not a boost in import volume.

According to the Department for Food and Public Distribution, about 56 percent of the domestic demand for edible oils was met through imports, as of 2019-20. That year, total production of domestic edible oils stood at 106 lakh tonnes, while total edible oil imports stood at 134 lakh tonnes. The government now estimates that up to 66 percent of edible oils are imported.

However, the government remains worried over consistently cutting duties as that may lead to further imports, ultimately hitting the domestic refining industry and domestic oil producers. “We can’t reverse existing policy so drastically that the domestic sector will be irreparably damaged,” another official said.

Focus on palm oil

The share of refined oil, raw oil and vanaspati in the total edible oil market stands at 60 percent, 35 percent and 5 percent, respectively, as rising incomes allow more Indians to move away from raw oil.

The vast majority of domestic refined oil consumption is, however, geared towards palm oil or palmolein, which constitutes about 54 percent.

The government recently approved an Rs 11,000-crore scheme to boost palm oil cultivation in India in an additional area of 6.5 lakh hectares till 2025-26. The National Mission on Edible Oils – Oil Palm (NMEO-OP) has a new centrally sponsored scheme with a special focus on the North-East and the Andaman and Nicobar Islands.

However, it has run into a deep controversy as environmentalists and forest rights groups warn that destroying green cover in the sensitive ecological zones of the North-East and Andamans will lead to a massive environmental damage.

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