The other imported oil

The Government has done the right thing by imposing a 2.5 per cent duty on crude edible oil imports, and simultaneously raising the ‘tariff values’ or base prices on which it is levied. The original purpose of fixing tariff values was to curb under-invoicing by importers. These were meant to reflect the ‘true’ global price and not the understated price declared by the importer in order to reduce duty liability. But as international prices began firming up after 2007, the Government itself turned an under-invoicer: It kept the base prices unchanged, using them more as a tool for checking inflation. Thus, the tariff values on imported crude palm oil (CPO) and soyabean oil were pegged at $447 and $580 a tonne respectively since around September 2006, as opposed their landed prices of roughly $ 800 and $ 1,200 now.

By increasing the base prices to $802 and $1,190 a tonne – closer to the actual landed rates – and also dispensing with duty-free imports, the Government has basically made imported crude oils costlier by an average of Rs 1.5 per kg. That, while not hurting consumers too hard, can also be justified from a growers’ perspective, especially when imported CPO prices have fallen from their $ 1,050-1100 levels a year ago. The domestic oilseeds farmer is more deserving of protection than wheat, paddy or sugarcane growers because, unlike the latter, he does not receive any enforceable price or procurement support from the Government. Moreover, whereas its own godowns are bursting with surplus wheat and rice stocks, India is importing more than half of its edible oil requirements. During the year ended October 2012, edible oil imports touched 10 million tonnes, valued at almost $ 10.5 billion.

While 100 per cent self-sufficiency may be unrealistic, neither can the current extent of import dependency be sustained, given that the country’s vegetable fats consumption is only going to increase with growing incomes and diversification of diets towards foods entailing varying degrees of frying. However, convincing farmers to shift acreages to high-yielding oilseeds like oil-palm, where the seedlings take at least five years to grow for the fresh fruit bunches to give oil, requires guaranteeing some price stability. That support – to ensure domestic CPO prices do not fall below say, Rs 45 a kg – is definitely worth granting in today’s context. To that extent, a 2.5 per cent import duty will help. The Government has been equally wise in not hiking the duty on imported refined oils from the existing 7.5 per cent. Since refining merely involves removing free fatty acids from the crude oil, followed by bleaching and de-odourisation, there is not much domestic value-addition to justify a duty differential of more than 5 per cent. If the idea is only to protect oilseed growers, then it matters little to them whether crude or refined oils are being imported.