The Hindu Business Line : Vanaspati industry split over duty-free imports

Controversy
Indian units have to import crude palm oil at 78.2 per cent duty.
Units producing from Sri Lanka have to pay a nominal $25 per tonne.
Cost difference on the final product is around Rs 8,000 per tonne

New Delhi , Nov. 29

The Centre's decision to de-canalise and allow duty-free vanaspati imports of up to 2.5 lakh tonnes (lt) annually from Sri Lanka has created a virtual split within the ranks of the Rs 7,000-crore plus industry.

Indian arms

The reason for this is that there are around a dozen vanaspati units set up in Sri Lanka by Indian companies. Among them are Mr Kailash Shahra's Ruchi Group (through Paras Industries Pvt Ltd), Adani Wilmar (Pyramid Lanka Pvt Ltd), Mr Vijay Gupta's Gujarat Ambuja Exports, Mr Ramesh Chandra Agarwal's Dainik Bhaskar Group, Mr Ravi Jaipuria's Accor Industries Pvt Ltd (`Cream Bell' brand), Mr Vijay Data's Vijay Solvex Ltd, Mr D.N. Jhunjhunwala's Jhunjhunwala Vanaspati Ltd, Mr B.K. Goenka's Foods, Fats & Fertilisers and the Vadodara-based Continental Vanaspati.

"All of them have been licensed by the Sri Lankan Government and are eligible exporting entities for supplying the 2.5-lt duty-free quota. So, they stand to benefit from the November 21 public notice issued by the Directorate General of Foreign Trade (DGFT)," sources pointed out.

Pre-purchase pact

The notice has said importers wanting to bring in duty-free vanaspati from the island nation will have to enter into pre-purchase agreements with any of the eligible exporters.

"Since the Sri Lankan Government has made it clear that no further licences will be issued under the Indo-Sri Lanka Free Trade Agreement, the ones who qualify as eligible exporters will make a killing," the sources added. Interestingly, out of the 16-odd licences issued, Indian companies account for a dozen. With bulk vanaspati prices in India ruling at roughly Rs 50 per kg, the total value of 2.5-lt duty-free imports would be about Rs 1,250 crore.

On the other hand, there are many leading domestic players without a manufacturing base in Sri Lanka. They include the likes of Agro Tech Foods (`Rath'), Bunge India (`Dalda'), Siel Ltd (`Panghat'), Amrit Banaspati (`Gagan' and `Ginni'), Wipro, Liberty Oil Mills, Punjab Markfed, Rasoi Ltd, Kanchan Oil Industries, Dinesh Oils and Kanpur Edibles.

"The units here are at a disadvantage — they have to import crude palm oil (the main raw material) at 78.2 per cent duty, whereas those producing from Sri Lankahave to pay a nominal $25 per tonne. The cost difference on the final product comes to Rs 8,000 per tonne or Rs 20 crore for a factory with 25,000 tonnes per annum capacity," said Mr I.R. Mehra, Executive Director, Indian Vanaspati Producers' Association.

Indo-Nepal pact

Besides Sri Lanka, there is a similar provision to import up to one lt at nil duty under the Indo-Nepal Treaty of Trade. Again, the facility to import raw material at zero duty has encouraged Indian companies to produce vanaspati in Nepal.

"Nepal vanaspati is being dumped in the northern and eastern markets, while that from Sri Lanka is going to the South. With imports no longer being canalised through Nafed either, there is no regulation at all," Mr Mehra added.

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Vanaspati industry split over duty-free imports