The Hindu Business Line : Chidambaram's master stroke: Import of RBD palmolein turns more viable

Government - Agricultural Policy
Agri-Biz & Commodities - Oilseeds & Edible Oil

Chidambaram's master stroke: Import of RBD palmolein turns more viable

G. Chandrashekhar

The duty and tariff value changes are positive for revenue and oilseed growers, neutral for consumers and processing industry; and importantly, negative for palm oil producers overseas.

Mumbai , Feb. 16

IN his earlier stint as the Finance Minister seven years ago, Mr P. Chidambaram had elucidated his priorities for protecting and promoting agri-business interests.

In his scheme of things, the consumer comes first , then the farmers and last the processing industry.

In restructuring customs duties and tariff values for vegetable oil imports ahead of the Union Budget, the Minister has demonstrated that he has not swerved from his long held conviction.

Look at the impact. The duty and tariff value changes are positive for revenue and oilseed growers, neutral for consumers and processing industry; and importantly, negative for palm oil producers overseas. In one stroke, Mr Chidambaram has managed to judiciously balance conflicting interests.

In raising the customs duty, the Government has demonstrated that it is willing to leverage its "import power". After all, India is the largest market for palm oil with annual imports of about 35 lakh tonnes. More often than not, rates of customs duty in India impact palm oil prices overseas; in Malaysia and Indonesia, to be precise.

Malaysia, the world's largest palm oil producer and exporter has been constantly criticising India for treating soyabean oil more preferentially than palm oil. India imposes 45 per cent duty on soyabean oil and 65 per cent on crude palm oil.

The 45 per cent duty on the former is the bound-rate under WTO. There is little the Government can do to raise the duty on soyabean oil.

On the other hand, the bound rate for palm oil is actually 300 per cent. But the effective rate is considerably lower (65 per cent) which means it is palm oil that enjoys a preferential status in India.

By lowering the duty on palm oil to make it on par with soyabean oil, the Government is not going to achieve any real benefit. There will be loss of revenue for the exchequer here and windfall gains for palm oil producers overseas.

Therefore, a mere comparison of the rates of customs duties on soyabean oil and palm oil is to ignore the Indian perspective.

By his deft handling of the duty matter, Mr Chidambaram has sent a clear message to the domestic importers and refiners lobby not to mess with him.

There is reason to believe he was far from happy about political pressure that was brought on him in recent weeks to dilute the carotenoid value condition for imported palm oil; and perhaps, much against his wish, his ministry had to succumb. Carotenoid value was reduced by half to minimum 250 parts per million early this month.

In his own smart way, Mr Chidambaram seems to have got back at the importers' lobby.

Large refiners with political clout have been pressuring the Government to create wider duty differential between crude and refined palm oil so as to protect their business interests. The refiners failed to find an effective solution to the massive problem of disposal of stearin, the solid fraction of palm oil which willy-nilly gets adulterated with vanaspati.

Now, with reduction of tariff value of crude palm oil by $54 a tonne and refined palmolein by $72 a tonne, imports of the latter have become a little more viable than before. This is in the interest of consumers as there would be uninterrupted supplies of ready to consume cooking oil.

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Chidambaram's master stroke: Import of RBD palmolein turns more viable