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G. Chandrashekhar

Mumbai, Nov. 7 The Government deserves to be complimented for keeping the rate of customs duty unchanged for imported vegetable oils, despite pressure mounted by the domestic oil lobby.

There has been a welcome decline in international prices much to the relief of consumers worldwide. But a number of Indian importers who had got carried away by the bullish fervour of early 2008 failed to read the writing on the wall. As a result, those holding long positions incurred heavy losses. Overseas suppliers have alleged numerous defaults by Indian importers.

Even as the tug-of-war is on, there have been attempts to prop the domestic market by self-serving market participants seeking imposition of customs duty on imported oils. Fall in oilseed prices has become a handy excuse to use oilseed growers as a front and argue for a hike customs duty.

As rightly observed by the Food and Agriculture Minister, oilseed prices are still ruling above the minimum support price (MSP) and there is no case for tariff protection at this stage. At present, there is no sign of a crisis as far as farm-gate prices are concerned.

Though farmers do not get the extraordinary rates that ruled last season, they are not complaining of unremunerative prices because there has been a healthy hike of between 35 per cent and 48 per cent in the MSP for oilseeds.

The Government estimates a 19-lakh-tonne decline in domestic oilseeds production in the kharif 2008 season to 179.5 lakh tonnes (lt). Specifically, groundnut (in-shell) crop at 61.0 lt is lower by 13.8 lt, while soyabean is a tad lower at 99.4 lt from last year’s 99.9 lt.

If one went by Government estimates, as the season progresses, oilseed availability could get tighter.

Industry and trade should actually be glad to have been able to purchase oilseeds at relatively lower prices. So, there is more to the complaint of low prices and recommendation for a hike in duty than meet the eye.

The vanaspati industry and oilseed exporters have, of course, objected to any hike in the extant rates of duty.

In any case, State agencies such as Nafed should be in a state of readiness to step in for procurement. Once State agencies begin to effect purchases, it will act as a support mechanism which, in turn, will force the trade and processing industry to rush to cover their requirement.

Media reports suggest large-scale default by Indian importers in a falling market and that as many as 30 parties may be involved. Names of a few have made it to the press.

Trade representatives and international intermediaries Business Line spoke to confirm that there has been a selective leak of names of alleged defaulters. Indeed, there are more names, including some really big ones; but there is reason to believe one or two influential brokers well networked with the media have ensured that their clients’ names were not made public.

Said an angry trade intermediary, closely associated with import business, the list is far from comprehensive; while some known names are left out, some others have been deliberately included possibly to settle trade scores.

Admittedly, it is a trade dispute between overseas sellers and Indian buyers. Usually, these are sorted out in trade forums in a friendly manner or go into arbitration. However, given the scale of the problem, the Government cannot afford to brush aside the complaint, especially when they relate to State agencies.

The role of the State agencies needs to be well defined. Should they be restricted to importing edible oil for public distribution system or should they be allowed to operate as any private importer? In the former case, the State agencies may be discharging a sovereign function and can possibly claim sovereign immunity. In case of commercial imports, State agencies will have to be treated on par with other private sector players.

The dual role of State agencies can potentially create complications not only for themselves but also for the Government. Their operations need to be closely monitored to ascertain if the public interest of importing through them is well served. Some guidelines may be necessary.

More Stories on : Oilseeds & Edible Oil | Excise and Customs | Commodity Commentary

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