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G. Chandrashekhar

Mumbai, Nov. 20 The Union Government’s decision to impose Customs duty of 20 per cent ad valorem on imported soyabean oil has the scent of a palace intrigue. There was no justification to tinker with the duty structure for imported vegetable oils – nil duty on crude and 7.5 per cent on refined oils; and yet the Finance Ministry has gone ahead and done exactly that.

The political angle to the latest decision cannot escape one’s attention. Assembly elections in Madhya Pradesh are on the cards. From about Rs 2,600 a quintal last season, soyabean prices have declined to Rs 1,550 a quintal. This is above the minimum support price of Rs 1,390 a quintal fixed by the Government. The Centre wants to be seen supporting soyabean growers. The decision to target soyabean oil alone for the fiscal treatment seems to be an attempt to woo farmers in the State.

Industry insiders, on condition of anonymity, talk about the big boys in soyabean business enjoying the support of a high profile union minister. That, earlier, soyameal had been singled out for fiscal benefit under the Visesh Krishi Upaj Yojana is a case in point, they said. Under the scheme, the Government had to pay out about Rs 250 crore as incentive to big export houses dealing in soyameal, though it was mainly intended to benefit growers and other primary producers.

The domestic industry lobby has, of course, been pressuring New Delhi for imposing/hiking the rate of duty on imported oils so that it can reap windfall gains on the stocks it is holding. It is strange that the Finance Ministry has selected only crude soyabean oil for the fiscal levy. This has created an anomalous situation.

At 20 per cent, the duty on crude soyabean oil is higher than that on refined oil. This goes against the Government’s oft-repeated stand that finished products should bear higher duty than raw materials. Indian importers would stop importing soyabean oil. The total import of the oil during oil year ended October 2008 was 7.5 lakh tonnes, down from the previous year’s 13.2 lakh tonnes. If anything, traders would bring in refined soya oil at a lower rate of 7.5 per cent duty. The move would also give an artificial and undeserved fillip to palm oil, as Indian importers would from now on rely almost exclusively on palm oil.

The policymakers could be mistaken if they believed that imposition of duty on crude soya oil would push up domestic soyabean prices. Given the size of the crop and enervated export markets for meal, imposing duty may have a marginal impact, if at all. Targeting soyabean oil for the fiscal impost is sure to annoy exporters of the commodity from Argentina, Brazil and the US. One can expect these exporting countries to take up this issue with New Delhi soon.

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

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