The Hindu Business Line : Need to review stand on oilseeds development fund

FOR some years now, trade associations in the vegetable oil sector have been lobbying with the Government for setting up a separate fund for strengthening and modernising the country's processing sector.

They have been demanding that a part of the huge revenues accruing to the Government on edible oil imports (in the form of customs duty) be earmarked for creation of the proposed development fund. Admittedly, oilseed crushing mills, solvent extraction units and vanaspati manufacturers have been going through testing times in recent years because of intrinsic inefficiencies in the entire chain.

Unsteady domestic raw material production, poor scale-economies, rising operating costs, competition from cheaper imports and falling asset value have become the defining features. No wonder, the capacity utilisation in oilseed processing industry is rather low with many units operating at sub-optimal levels or closed.

In processing technology too, the domestic industry is a quaint amalgam of different generations of technologies. You have the bullock-driven backyard crushers, expeller presses and modern extruder/expanders, all operating simultaneously. Without doubt, there is need for removal of inefficiencies and infusion of competitiveness in the oilseed-based sector.

Some of the major requirements are consolidation of fragmented capacities so as to gain economies of scale, modernisation or technical upgradation of mills and revival of sick units. It is for this reason that the oilseed processing industry proposed creation of a development fund on the lines of Sugar Development Fund (SDF). The SDF is supported through the imposition cess, charged with excise duty, at the factory gate. There are about 500 sugar factories in the country.

The Government has, however, not found the vegetable oil industry's proposal feasible. It now transpires that the Ministry of Finance (MoF) had, as far back as September 2001, shot down the proposal to set up a fund for the edible oil industry.

The reason adduced by the Ministry is that unlike the sugar industry, oilseed crushers are far too numerous, lack organisation and fall in the small-scale industry (SSI) reservation category.

According to the Ministry, it is not feasible to impose a cess on these units. The second suggestion that of earmarking a part of revenue earned through levy of customs duty, was also rejected by the Government as inappropriate. According to the MoF, customs duty collections accrue to the Consolidated Fund of India and the proceeds are appropriated between the Centre and the States. Therefore, an edible oil industry fund could not be established.

Need for rethink

The Government needs to rethink its stand. There is nothing to suggest that the policymakers have disputed the need to strengthen the oilseeds processing sector, nor is there any opposition to creation of a development fund. The problem seems to relate to imposition and collection of cess. It is tragic that the MoF has made the procedural issue (collection of cess) appear more important than the development issue itself.

There are, as per estimates available with the Ministry of Food and Consumer Affairs, 1.5 lakh oilseed crushing units, over 700 solvent extraction plants, over 250 vanaspati units and nearly 600 independent refineries. Also, many solvent extraction plants and vanaspati units have refineries attached to them. This should be the target group for levy of cess. Surely, it is nobody's case that the Government should reach the nearly 1.5-lakh crushing units spread across the country. It is relatively easy to reach the more organised section — refineries, solvent extraction units and vanaspati producers. When excise duty on manufacture of refined oils and vanaspati was imposed, the Government surely had the wherewithal to reach them.

Therefore, the Government's position is not tenable. What's required is the will to raise funds for modernisation of the oilseeds sector. Sooner or later, the Government will also have to review the desirability of continuing with the SSI reservation for crushing of major oilseeds, groundnut and rapeseed/mustard. The extant policy while sustaining inefficiencies in primary processing discourages investment and modernisation. Unlike the sugar sector, which `enjoys' government support and patronage, the vegetable oil sector is relatively free. The latter is three times the size of the sugar sector and deserves a better deal from policymakers.

It is imperative that a roadmap for the future growth and development of the oilseeds sector is drawn up and an assessment of financial, human and technological resources is made with a view to making the country largely self-sufficient.

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