India’s bid to protect farmers’ income by hiking the import duty on edible oils is turning out to be counter-productive. Edible oil traders and bulk buyers in the country have spotted a duty-free route through SAARC nations to import cheap edible oils.

After the Centre hiked the import duty on edible oils in March, imports turned costlier, resulting in a drop in inbound shipments of vegetable oils in June.

However, in search for cheap imports, the traders have spotted a policy loop-hole, wherein imports of edible oils are duty free for signatories of the South Asian Free Trade Area (SAFTA) agreement, which are mainly the SAARC nations.

“On the one hand the government is increasing duty to raise farmers’ income, on the other, they are allowing zero duty imports under SAFTA. This will prove counter productive and will hurt the country much more than benefit,” said Atul Chaturvedi, president, the Solvent Extractors’ Association of India (SEA).

According to trade sources, already a vessel containing 10,000 tonnes of oil has reached Haldia port on the East shore, while another with a similar quantity is likely to reach JNPT, Mumbai, soon.

Under the SAFTA agreement, India, however, allows duty-free imports of goods from signatory countries on two grounds, either the commodity is native to the country or it has 30 per cent value addition. Taking advantage of these provisions, countries such as Bangladesh and Sri Lanka are gearing up their refineries to supply oils under SAFTA.

Raising concerns, Saurashtra-based oil body Saurashtra Oil Mills Association (SOMA) has written to Union Agriculture Minister Radha Mohan Singh. “The imports are originally from palm oil producing countries like Malaysia and Indonesia, which are not SAARC members. To avoid the duty imposed by India, the oils are being dispatched from these countries with invoices of SAARC nations. Due to this, we are incurring losses of import duty while imports are not reducing,” Sameer Shah, president, SOMA said in a letter.

“India needs to control this, otherwise it will be a huge problem. The government can use non-tariff barriers and other measures to stop this. Or the purpose of increasing the duty will no longer remain effective,” said Chaturvedi.

Currently, soya oil and palmolein are the two oils that are making in-roads to India via the sea route.

Imports from SAARC countries such as Bangladesh and Nepal are not a new phenomenon, as small quantities were imported through road routes. But under the lower duty structure regime, there was no incentive to route the imports through SAARC. Now, with a hike in import duty, countries such as Bangladesh and Sri Lanka have started processing the crude oils and exporting them to India through the duty-free route.

“Now, it seems we have opened the flood-gates for imports from these countries. Even though there is nothing illegal about importing through SAARC, it is killing the very purpose of imposing higher duty on imports,” said BV Mehta, executive director, SEA. “The cheaper imports will definitely influence the domestic market and prices have started falling. The refineries in Bangladesh and Sri Lanka are on revival at the cost of India’s farmers,” he added.

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