The Hindu Business Line : An oily situation

Time is of the essence in matters fiscal, but in cutting the Customs duties on vegetable oils this week, the Government has shown some poor sense of timing. Palpable is its urgency to rein in inflation, but not a meaningful strategy that delivers. It is unclear what is sought to be achieved by tinkering with the duties when the market itself is groping for direction and is most unlikely to spike any further. A 5-10 percentage-point reduction in the basic Customs duty on pa lm group of oils, soyabean oil and sunflower seed oil has been announced. The revision is but cosmetic, and its timing exposes the lack of market intelligence in the government. From the current levels, the upside risk to palm oil prices is extremely limited; if anything, the market could soften because of the peak production season and slowing exports.

For the domestic market, the quantum and timing of the duty cut may prove ineffective. It is hardly sufficient to deliver any sizeable relief to consumers already reeling under the burden of high prices. Any relief the downward revision may bring, if at all, would be so paltry (Re 1 on Rs 50 a kg at the retail level) as to make little difference to anyone. If the Government is serious about augmenting oil supplies for the festival season ahead and keeping prices in check, it must take two steps. First, encourage import of refined oils. In recent years, a few large refineries have come to dominate the import business and dictate market prices. The time lag between crude oil arrivals and the refining and marketing creates a window of speculative opportunity that needs to be closed. It can be done by unifying the rate of duty on both crude and refined oils (at least for a short period), which will encourage traders to import the latter that can be marketed straight away. Speculators who have built stocks anticipating higher prices will be forced to liquidate. Overall, it will have salutary effect on prices. Second, immediately revive supply of cooking oils through the Public Distribution System and price them at a rate the poor can afford.

There is no other easier and effective way to support poor consumers, most of whom suffer from serious malnutrition due to calorie deficiency and need to raise their oils/fat consumption. If this involves some subsidy, so be it. Also, the duty-free vanaspati that comes from Nepal and Sri Lanka (about three lakh tonnes a year) can be channelled to the PDS. The UPA Government that rode to power on the back of aam aadmi has a duty towards him.

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