The Hindu Business Line : Oil logic

Does New Delhi have a well-thought out strategy to fight inflation and protect the interests of the poor, who are hit the hardest? There is little evidence the government has a comprehensive strategy. Action comes in spurts, without specifically targeted outcomes. In its seemingly losing battle over inflation control, the Centre has begun to fire missiles in all directions. Individually, the missiles are weak; and collectively, they are in danger of fizzling out because of poor timing. There is, then, the attendant risk of missing the price control objective. Commodity-related policy actions taken in the last 12 months have largely been trade and tariff measures; but none of these, either jointly or severally, brought tangible relief to the really needy. On the ground, the price situation continues to remain a cause for serious concern.

After the ban on edible oil export, it is a reduction in the basic Customs duty on select vegetable oils. Even in this belated yet welcome move, there is limited application of mind. Palm oil has been favoured with a sizeable duty reduction of 25 percentage points to 20 per cent ad valorem, while duty on mustard and sunflower oils has also been slashed to 20 per cent. What about soyabean oil? The rate of duty on soyabean oil is 45 per cent; and, after palm oil, soyabean oil is the second largest in our import basket. Ironically, even as the Government made up its mind about duty reduction, international prices are beginning to come off their recent highs. This reflects a poor sense of timing and lack of commercial intelligence. The Finance Ministry needs to beef up its research and analytical skills. The second issue that deserves attention but has been overlooked is the duty differential between crude and refined oils. The logic of duty differential, though valid, is unhelpful. It is common knowledge that a handful of large refiners control the country’s vegetable oil market and swing prices at will. The differential duty between crude and refined oils has favoured refiners and effectively kept traders out of import business.

If the government is really serious about making a dent in domestic market prices, it should be bold enough to withstand lobby pressure and encourage import of readily marketable refined oils by allowing both crude and refined oils at the same rate of duty. This strategy, essentially short-term, may be reviewed at the time of kharif oilseeds harvest later in the year. Finally, there is simply no alternative to addressing the supply side issue of raising domestic production to meet the growing demand. The oilseeds sector represents a major policy failure of successive governments.

Related Stories:
Customs duty on cooking oils slashed
Ban on edible oils export
Export ban unlikely to deliver results

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