The Hindu Business Line : Govt concerned over continuing strength in edible oil

Mumbai, June 29 Mr T. Nand Kumar, Secretary, Ministry of Food and Public Distribution, has summoned industry and trade associations relating to the edible oil sector for a meeting to be held in New Delhi on July 2.

Ways and means of augmenting supplies and reining in prices is likely to be the focus of discussion. Edible oils have a fairly high weightage in the consumer price index. It is clear the Government is concerned over continuing strength in the edible oil market.

World prices have spurted and domestic production is below expectation. Importantly, there will be a manifold rise in consumer demand during the upcoming festival season beginning August.

Progressive reductions in customs duty in recent months, especially in palm group of oils, have not helped contain domestic prices as globally the market has been near-record high in the wake of demand from the biodiesel sector.

Coupled with lower duty, an appreciating rupee has surely arrested a major spike, but current prices are far from consumer-friendly.

Options

What are the options before the Government? The upside for the rupee from the current levels is rather limited. Further tariff cut is surely an option to be explored.

Indeed it is the most opportune time for New Delhi to further rationalise tariffs. Across edible oils — soyabean, palm, rapeseed and sun — the duty could be uniformly brought to 45 per cent. This will allow industry to decide which oil to import, depending on consumer needs and costs.

More important, if the Government wants quick relief from high prices, customs duty on both crude and refined oils should be unified and allowed for import at the same rate of duty.

The time lag (window of speculative opportunity) between import of crude oil and marketing of refined oils should be closed. Inflation hurts the poor the most. India’s poor are already seriously malnourished.

Drying demand

Demand at the lower end of the market is drying up as edible oils have become unaffordable. This leads to adulteration and similar nefarious activities.

A sure way to support poor consumers is to quickly restart supply of edible oils through the public distribution system (PDS). This is the most logical and safe way to rein in open market prices, and should have been implemented long ago.

The Government’s reluctance is intriguing. Channeling imported vanaspati from Nepal and Sri Lanka for PDS can be the starting point. The global edible oil market is unlikely to soften anytime soon. The domestic oilseed crop prospects will become clear not before mid-August.

Therefore, the time to act is now. However, in decisions that have revenue implications, it is for the Finance Ministry to take a call.

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Govt concerned over continuing strength in edible oil