The Hindu Business Line : Wanted: Zero-duty veg oil imports

Mumbai April 22 Demand for allowing duty-free import of vegetable oils is gathering momentum in the wake of international prices showing no signs of softening and successive customs duty cuts effected by India having had no impact on domestic edible oil market. Consumers continue to reel under inflation.

As an immediate solution to arrest the rising trend in edible oil price levels in the country, the New Delhi-based Indian Vanaspati Producers' Association (IVPA) has suggested a drastic reduction in crude palm oil import duty. The duty should be brought down to zero, the prevailing rate in the neighbouring countries such as Sri Lanka and Nepal, the association has asserted.

Duty cut

The argument is that piecemeal duty cuts have failed to have the desired impact, and only a meaningful reduction in keeping with market conditions would be appropriate.

It is significant that crude palm oil is a major raw material for the domestic vanaspati producing units. The industry has been going through a rather lean patch in recent years because of competition from liquid oils and also imports from neighbouring countries under free trade agreements.

"The argument favouring zero-duty has merit because the justification for maintaining high rates of customs duty on imported vegetable oils is not valid anymore," Mr B.K. Swaika, Chairman of the Kolkatta-based Swaika Group of Companies, told Business Line.

Protection of domestic farmers' interests in the context of low international prices was the rationale behind high tariffs until recently.

With increase in international prices of vegetable oils (due mainly to huge demand from the biodiesel sector) indigenous oilseeds prices too have risen, benefiting oilseed growers in the process.

Proof that oilseed growers enjoy remunerative returns is provided by the current market price of rapeseed/mustard which is trading at well over Rs 18,000 a tonne, considerably higher than Rs 17,150 a tonne minimum support price, Mr Swaika pointed out, adding that for this reason procurement by the National Agricultural Cooperative Marketing Federation has not taken off this season.

Tariff protection

Given high vegetable oil prices, oilseed growers do not need any tariff protection at least in the short-term, according to industry and trade representatives.

Tariff values

Indeed, there is a considerable scope for further customs duty rationalisation. However, duty cuts should be simultaneously accompanied by an appropriate upward revision in tariff values. The extant tariff values have remained frozen for several months. This most undesirable practice must end. Tariff values should reflect market reality.

There is nothing to suggest that customs duties once reduced would not be raised. If, for any reason, international prices decline substantially and conditions for a hike in duty are appropriate, there should be no hesitation to jack up the rates.

Whether or not the Government will demonstrate the `political will' to examine the feasibility of a further duty cut is unclear. But what is clear is that neither the Government nor the domestic producers can any more ride on the back of farmers or use oilseed growers as a prop for taking a position on the rate of customs duty.

Domestic producers have been lobbying for retaining high rates of duty primarily to benefit from high domestic prices. However, experience shows that high prices have not translated into higher oilseed production.

The Government has been talking about a gradual reduction in customs duties on sensitive products. Such an approach cannot be `stand-alone' or unilateral approach. Simultaneous action to strengthen and reform the domestic production base is absolutely necessary so as to derive the advantages of market integration.

The industry - solvent extraction, refineries, vanaspati - should do some serious introspection and come up with holistic solutions for the entire oilseeds sector.

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