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Agri-Biz & Commodities - Oilseeds & Edible Oil

A bitter-sweet pill for vegoil sector

G. Chandrashekhar

Mumbai , July 8

A SECTION of the country's vegetable oil industry may have reason to be disappointed with the United Progressive Alliance's maiden budget which has proposed little else than a small — five percentage point — increase in basic customs duty on refined palm oil/palmolein to 75 per cent ad valorem, belying starry-eyed expectations from the Union Finance Minister, Mr P. Chidambaram.

The hike is in keeping with the recommendation of the Tariff Commission.

With this, the duty differential between crude and refined oils in the palm complex is widened to 10 percentage points.

In April 2003, the then Finance Minister reduced the basic customs duty on refined palm oil/palmolein from 85 per cent to 70 per cent and abolished the special additional duty. Since then the refining industry has been vociferously seeking restoration of status quo ante; but policymakers found no merit in the demand.

The wider differential is unlikely to bring about any significant change in the market here or abroad. Malaysian market remained unperturbed this afternoon as the players had already taken cognisance of the possibility of duty revision in India.

In the domestic market, palm oil prices are set to rise marginally because of the hike in duty and the levy of 2 per cent education cess. However, a softening tendency in the overseas markets will impart a sobering effect on domestic prices.

Over the coming months, larger volumes of the so-called crude palmolein will start flowing in. It is also time the Government looked at reduction in the tariff values of various vegetable oils to reflect prevailing international prices. Such a move will be consumer-friendly and reflect current realities of the market.

In deference to the suggestion of the industry, excise duty on food-grade hexane used by the solvent extractors has been reduced by half to 16 per cent. This should bring some relief to the processing units.

Mr Chidambaram has done well not to succumb to industry pressure in the matter of fiscal imposts. He has continued with the excise duty of Rs 1,000 per tonne on manufacture of refined oil and Rs 1,250 a tonne on vanaspati; and not exempted any category of oil. It is necessary to tighten the collection mechanism and ensure there is no loss of revenue.

It is also time to review the excise duty exemption granted to units in regions like Kutch in Gujarat, so that policy-induced distortions in the marketplace are removed and the entire spectrum of industries in oilseeds and oils processing have a level-playing field to operate.

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