• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Port Info

• Ships in Ports
  
  

Archives

• Yesterday
• Datewise
• Resources

Group Sites

• The Hindu
• Business Line
• The Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

G. Chandrashekhar

Mumbai , March 14

IT was exactly four years ago that India raised the Customs duty on various edible oils rather steeply after taking into account factors such as international and domestic prices, support to domestic oilseeds growers and protection of consumer interest. Revenue to the exchequer was a consideration too.

Respecting the WTO-bound rate of duty on soyabean oil at 45 per cent, the Government has levied the highest permissible rate on that oil for the last four years. The WTO-bound rate of duty on palm oil is 300 per cent. However, considering various factors, the Government had always levied a considerably lower rate of duty on palm group of oils. Currently, duty on crude palm oil is 80 per cent and on refined palm oil 90 per cent.

The steep duty hike across the board in April 2001 willy-nilly created a differential in Customs duty rates between soyabean oil and palm oil.

Since mid-2001, Malaysia has been harping on this duty differential.

Projecting it as a serious grievance, the country constantly seeks parity in duty between soyabean oil and palm oil.

Malaysia very well knows that India cannot raise the duty on soyabean oil above the bound rate of 45 per cent. In effect, Malaysia wants India to reduce the duty on palm oil so that the share of palm oil in the Indian market increases.

Last four years, in forum after forum, ministers and officials of Malaysian Government have been slamming India for what they see as a discriminatory practice which they think is distorting the vegetable oil market. Their claim is that the duty structure of India depresses palm oil prices. Palm oil has been selling around $100 a tonne lower than soyabean oil price.

It is amusing to see Malaysia whine constantly about India's policies. It is the world's largest producer and exporter of palm oil. However, a significant part of India's nearly 35-lakh tonne annual imports is from the second largest producer and exporter, Indonesia.

It makes commercial sense for India to import crude oil and utilise the domestic refining capacity. Much of crude palm oil imports into India is from Indonesia, as Malaysia is keen to export finished goods that is refined palmolein, rather than crude palm oil.

Far from enthusiastically servicing the requirements of the world's largest importer of palm oil that is India, the world's largest exporter of palm oil Malaysia has simply been taking the Indian market for granted for a decade and more.

Logically, the Malaysians ought to have identified India's market potential long ago and built up a long-term commercial relationship by strengthening the two-way trade. They did little.

Worse, Malaysia refused to extend cooperation to India in the latter's endeavour to promote oil palm cultivation. The apprehension that India may compete with Malaysia in palm oil production is baseless.

On the other hand, India has been rather lenient. India ought to have leveraged its import power to drive a hard bargain with Malaysia to enter into long-term supply commitment at reasonable prices. While the cost of production of crude palm oil is about Malaysia ringgits (MYR) 700 a tonne, Malaysian suppliers are not satisfied even with price at MYR 1,300-1400 a tonne.

For India, a long-term palm oil supply arrangement at stable price band and counter-trade agreement with Indonesia would be in order. Two-way trade with Indonesia would be mutually beneficial.

During his visit to India December last, the Malaysian Prime Minister, Datuk Seri Abdullah Ahmad Badawi, reportedly discussed the issue with Minister of Commerce, Mr Kamal Nath; but the discussion seems to have made no headway.

Now, the Malaysian Minister for Plantation Industries and Commodities, Datuk Peter Chin, is planning to visit India to meet his counterpart so as to continue to lobby for duty reduction. There is not only no case for a duty reduction at this point of time, India should extract maximum mileage from its import power.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Corp Kisan card

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line