The Hindu Business Line : Palm oil challenge

If Indian policymakers have returned from the recently concluded Asean meeting with the smug feeling that they have successfully resisted pressure from trading partners to reduce the Customs duty on palm oil (currently 70 per cent on crude and 80 per cent on refined palm oil), they could be mistaken. The reprieve, if any, is temporary. Actually, the real problem is within the country. No doubt, lower Customs duty on palm oil will hurt domestic producers' interests. Also, given India's growing economic clout and market size, there is no need to succumb to pressure from suppliers such as Malaysia.

Yet, the subject deserves a dispassionate review. Despite the recent spurt in global vegetable oil prices (up 20 per cent in four months, driven mainly by bio-diesel demand) and the stiff rate of duty, imported palm oil is still the cheapest oil available to India, cheaper than close substitutes such as soya-bean oil and groundnut oil. If the duty were reduced, the sheer volume of imports (close to 30 lakh tonnes, representing two-thirds of total edible oil imports) would pull down the prices of indigenous oils and with them, oilseed prices, to the detriment of growers. Imported soya-bean oil, on the other hand, bears a WTO-bound rate of 45 per cent duty, a figure palm oil suppliers swear is discriminatory. The time has come to raise the question whether high tariff rates of recent years on various palm oils have had any positive impact on indigenous oilseed output. The answer, unfortunately, is a categorical 'no'. If anything, oilseeds cultivation continues to be dogged by the same challenges and constraints relating to land, inputs and agronomy. The Government and the industry have done little to invigorate the sector that is gradually turning moribund. There has hardly been any aggressive initiative to raise production and productivity. The only benefit of high duty is that palm oil imports generate huge revenue (over Rs 5,000 crore) for the exchequer.

Clearly, the current state of play exposes the lack of coordination among ministries such as Agriculture, Food, Finance and Commerce in shaping a dynamic policy for imports and tariffs in the oilseeds sector. The Government cannot indefinitely hold off rationalisation of Customs tariffs on various commodities. We need to first put our house in order to be able to face imminent competition from abroad. Raising production through higher productivity of oilseeds, developing oil palm plantations and modernising the processing industry are key tasks that deserve serious attention. The entire South and South-East Asian region will move towards a largely unified Customs tariffs soon; India may find itself isolated if it does not play ball.

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