The Hindu Business Line : Vegoil sector: Need to look beyond demanding sops

IN their pre-Budget memoranda, the recommendations and demands made by various associations in the vegetable oil sector make interesting reading not only for the divergence of views but also for inherent weakness in the arguments.

Some of the recommendations hide more than they reveal. Take the matter of customs duty. New Delhi-based Central Organisation for Oil Industry and Trade as well as the Mumbai-based Solvent Extractors' Association of India (SEA) both have urged the Government to restore the basic customs duty on refined palm oil/palmolein to 85 per cent (as was the case prior to April 30, 2003) from the present level of 70 per cent ad valorem.

Both have used the time worn ``remunerative prices to farmers'' argument to buttress the case. In their representation made late October, both the associations forecast that global vegetable oil prices would crash soon and that farmers may be denied remunerative prices.

The forecast has been proved absolutely incorrect. Global vegetable oil prices have continued to rule quite firm. In the first place, they never looked like crashing. Indeed, the market which was poised for an upturn started to boom as soon as the American soyabean crop numbers were released on October 11.

Interestingly, in the domestic market too, despite a sharp rebound in oilseeds production, the price sentiment is one of buoyancy. Growers are obtaining very attractive prices, not seen in recent years. This is especially true for soyabean and groundnut, two major oilseeds of the kharif season.

So, neither the international market nor domestic market has shown any signs of price weakness, making the case for a hike in customs duty rather weak and the arguments untenable.

On the other hand, the Kolkata-based All India Oils and Seeds Foreign Trade Association has emphasised that the current duty difference between crude and refined oils should not be increased for any reason as the differential is healthy and beneficial to oilseed growers.

Take the representation on excise duty. While, the Kolkata-based body is dead set against any subsidy or exemption from excise duty (and rightly so!), the apex body Central Organisation wants a special additional duty on imported oils in lieu of excise duty on refining for the reason that the processing industry is highly fragmented and that strict compliance with excise norms may not be possible.

It must be mentioned that excise duty is levied on the manufacture of refined oil, irrespective of whether the raw material is indigenous or imported. Why imported oils alone should attract special additional duty in lieu of excise duty is unclear. What happens to excise duty on refining of indigenous oils?

On excise duty again, SEA has made an explosive demand. First, it has asked that non-conventional oils be exempted from excise duty, as otherwise further exploitation of these oils will be discouraged. The association wants, in addition, refining of all indigenous fixed vegetable oils (cottonseed oil, ricebran oil etc) falling under heading 1502 under the Central Excise Tariff Act to be exempted from excise duty.

While there is absolutely no doubt that exploitation of non-conventional and minor oil resources should be encouraged (unfortunately, they have remained neglected in recent years), exemption from excise duty may not be the appropriate method of providing encouragement.

The industry, sadly, is not exactly known for its honesty or tax compliance. By its own admission, excise duty evasion is not uncommon. If the Government starts granting excise duty exemption selectively, it can potentially lead to tremendous revenue loss, as it will open up possibility of mis-declaration of the nature of refined oil produced.

On the other hand, it would make sense for the policymakers to reinstate the past practice of allowing excise duty rebate for manufacture of vanaspati using non-conventional and minor oils as raw material. Use of non-conventional oils through the vanaspati route will surely create a ready marketing outlet for such oils and provide support to their producers. Mere exemption from excise duty, as demanded by the industry, is unlikely to further the cause of such oils.

There is a chorus of demand for setting up `Oilseeds and Oils Development Fund'. It is unclear what specific targets or action plan or development model the industry has envisaged— most likely there is none. The oilseeds-based sector including the processing industry surely needs serious attention in terms of holistic efforts to raise production and productivity as well as consolidation and restructuring of the fragmented industry.

Even chambers of commerce such as FICCI have been roped in to sell the idea of a fund to the Government. From all this, it appears, the industry is asking the Government to first create a fund and then development plans will be worked out.

Most unfortunately, the industry associations have glossed over serious issues that impact Government revenue and consumer health. In matters relating to suspected evasion of customs duty (invoice manipulation), evasion of excise duty on manufacture of refined oils/vanaspati, sales tax and other local levies as also sale of adulterated or sub-standard oil that hurt consumers the associations have maintained a stoic silence. They seem to wish such problems did not exist.

The vegetable oil trade and industry associations have to rise beyond demanding mere sops and reliefs. They should be in a position to envision ways and means by which a healthy, vibrant and transparent industrial climate can be created. From that perspective, they have not acquitted themselves well.

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Vegoil sector: Need to look beyond demanding sops