After a sharp spurt in edible oil prices in the past two months, the Centre has relaxed the import duty on crude and refined palm oils. The move, however, has left the domestic industry fuming amid fears of a rise in refined oil imports under the new duty structure.
The government cut the import duty on crude palm oil from 40 per cent to 37.5 per cent and that on refined palm oil from 50 per cent to 45 per cent from January 1. This leaves the duty difference between the imported crude and refined oils at 7.5 per cent, as against 10 per cent earlier. This, according to the domestic refining industry, will make import of refined palm oil more attractive and hurt the capacity utilisation of the refiners.
The duty-cut has been made under the ASEAN agreement and the India-Malaysia Comprehensive Economic Cooperation Agreement (IMCECA). Notably, India imports about 70 per cent of its annual edible oil requirements of about 24 million tonnes.
‘Harmful to industry’
“This decision will be detrimental to domestic refiners. We have been demanding a duty difference of 15 per cent, but the latest decision reduces it to 7.5 per cent. Additionally, Malaysia has made crude oil costlier by imposing an export duty of 5 per cent, giving a boost to refined oil exports. This means the net differential drops further to 2.5 per cent, effectively,” Sudhakar Desai, President, Indian Vegetable Oil Producers Association (IVPA), told BusinessLine.
The major drawback of the FTAis that there is no clause that restricts exporting countries to impose unfair duties on crude oil exports. This compromises the interest of India’s oil processors. Desai further added that Indian refineries have to pay a higher duty of 37.5 (plus surcharge) or an effective duty of 41.25 per cent on raw materials, which makes their byproducts non-competitive as the byproducts are imported at 7.5 per cent duty, which is a loss-making proposition for them.
Appeal to govt
Considering these fallouts, the IVPA has urged the government to maintain the duty differential at 15 per cent. “If there is any other practical solution, we are open to it and our focus is on a level playing field for domestic players,” Desai said.
There are fears that large-scale imports of refined palm oils will hurt the interests of domestic refiners, who may face reduced capacity utilisation.
The Solvent Extractors’ Association of India (SEA) has also expressed disappointment over the Centre’s decision and requested the government to increase the duty difference between crude and refined palm oil to 15 per cent.
“This action of the government has come as a blow not only to our domestic palm oil refining industry but also to our oilseed farmers. After a long time, domestic oilseeds had started selling above the MSP, thereby improving farm incomes. Lower import duty would make it difficult to defend the MSP and the new-found enthusiasm of the oilseed farmers would be dampened. This will be counterproductive and contrary to our stated objective of increasing domestic oilseed production,” said Atul Chaturvedi, President, SEA.