The Hindu Business Line : Illogical ban on castor oil export

Mumbai, March 25 Hasty decisions often lead to unintended consequences; and our government is in the habit of taking hasty decisions that hurt not the Government itself or the officials responsible for such decisions, but industry and trade who are at the receiving end of such decisions.

Notification (No. 85 dated March 17) banning of edible oil export is a case in point. Export of all edible oils under chapter 15 of Schedule I to the Export Policy has been prohibited.

Chapter 15 lists several vegetable oils, both edible and non-edible, including castor oil which is an industrial oil.

Customs authorities have stopped processing documents for export of castor oil citing the DGFT notification. No official in the Commerce Ministry or in the DGFT office seems to have had a look at Chapter 15 in the Policy book or applied his mind while drafting the notification.

The consequence is that castor oil exports stand banned. Very clearly, it is a faux pas. Someone must assume responsibility for it. The decision needs to be reversed and it should be specifically clarified which oils are banned and those allowed for export. But if we know the way of the government, the clarification is unlikely to come out anytime soon. The Commerce Ministry will have to set off a round of correspondence with other concerned ministries (Food and Consumer Affairs, for instance) and seek their clearance - a process that will take time.

Meanwhile, castor oil export contracts are in a state of limbo. While domestic market for both oil and seeds may collapse and hurt growers, prices overseas are likely to shoot up.

Indian exporters may also be dragged into arbitration proceedings.

India is the world’s largest producer and exporter of castor oil.

The world market depends on India as an origin to supply the global needs. Castor oil is used for a number of industrial applications including paints, varnish, resins, plasticisers and so on. Annual export of this versatile industrial oil is about 2,00,000 tonnes and the country earns over Rs 800 crore in foreign exchange. There is also a growing market for value-added castor oil products such as derivatives - hydrogenated castor oil, dehydrated castor oil and so on. Current export prices of $ 1,300 a tonne are quite attractive considering strong global vegetable oil market.

The totally unexpected decision to ban export is turning out to be a matter of acute embarrassment for the exporters here. They are unable to explain the rationale behind the export ban. Ironically, it was exactly a month earlier that the Solvent Extractors Association of India (SEA) successfully held an international seminar for promoting castor oil exports in which a number of overseas delegates including from countries as far apart as China and Holland participated.

The other unintended consequence of the hasty ban on export is that vegetable fats of tree-borne oilseeds also stand prohibited. According to SEA, we export about 10,000 tonne of vegetable fats from minor forest produce (sal fat, mango kernel fat, kokum fat etc). Tribals do the collection of tree-borne oilseeds and there is no domestic market for these special fats. It makes little sense to prohibit the export of minor forest produce and hurt the interests of tribals.

The trade and industry will be forced to bear the negative consequences of an unthinking ban by the Commerce Ministry. Clearly, policy risk to business – especially agribusiness – stands heightened. All notifications state that the decision is taken in public interest. It is time the Government is forced to spell out what public interest its decisions serve.