Agri Business

Let’s cut edible oil imports

G Chandrashekhar | Updated on September 18, 2018 Published on September 18, 2018

Employees fill plastic bottles with edible oil at an oil refinery plant of Adani Wilmar Ltd, a leading edible oil maker, in Mundra, 375 km (233 miles) from the western Indian city of Ahmedabad, June 10, 2009. Indian oilseeds and veg oil industry is undergoing a consolidation and expansion phase as big players try to build capacities to lower operational costs and better margins. Picture taken June 10, 2009. REUTERS/Amit Dave (INDIA BUSINESS)   -  REUTERS

With the rupee depreciating rapidly and crude oil prices unrelentingly high, the government has been forced to examine various options to reduce non-essential imports. Ironically, even a popular essential commodity of mass consumption — edible oil — lends itself to some import restriction without any collateral damage.

Among food commodities, edible oil import is the largest with a foreign exchange outgo of a humongous $11 Billion (₹77,000 crore) towards import of about 15 million tonnes of various types of oils. Imports are necessary because consumption continues to far outstrip domestic production.

Surely, a part of the annual import is speculative and primarily benefits traders who take speculative trading positions. At any point of time the country carries two million tonnes of inventory and there is a constant effort to get the customs duty hiked so that stockists reap windfall gains. The customs duty hike of the last few rounds has not delivered anything tangible in terms of import volume, except of course some revenue for the exchequer.

Time for change

Therefore, something different, somewhat disruptive, should be attempted. Roughly, between 12 and 15 per cent of our annual imports can be comfortably reduced. This represents the speculation part and possibly stock transfer from origin to destination rather than genuine sale. So, let there be a ceiling on annual import — say, 12-13 mt. This ceiling can be reviewed every quarter.

Imports should be closely monitored through a process of contract registration and tracking of arrivals. Policy-makers will have clues about how much has been contracted for, at what price, and the arrival period. Today, they do not have the information and therefore show knee-jerk reaction to market developments.

Most critically, the long credit period — 90 to 150 days — enjoyed by importers should be reduced to 30 days maximum. A long credit period results in over-trading and fosters an unending loop of imports, often to pay for past imports. Many imports are mired in what can be described as an ‘import debt trap’.

Reduction in import quantity though quantitative ceiling, import monitoring and reduction of credit period will lead to the twin benefits of reducing foreign exchange expenditure and at the same time lifting the prices of oilseeds from low levels in the domestic market.

An easy option would of course be to raise the rate of customs duty on imported oils. However, this tried and tested fiscal impost has not delivered the desired results. We need to try something different. Because desperate situations call for desperate remedies, the aforesaid restrictions are worth exploring.

There will be a hue and cry from traders that the country is going back to the ‘license-quota-control raj’; but these restrictions are not intended to be permanent. These may be necessary to tide over a particular difficult situation as at present. The liberal import policy of the last couple of decades has actually lulled everyone, including the policy-makers, into a state of complacency. This has to be disrupted.

From a medium to long-term perspective, there is no choice but to rapidly expand domestic production of vegetable oil through marked improvement in production and productivity of oilseeds. But unless growers receive remunerative prices consistently, they will not be motivated enough to ensure sustained production growth.

The structural problems of Indian agriculture, including those of oilseeds, deserve close attention though policy support, investment support and technology support.

The writer is a policy commentator and global agribusiness specialist. Views are personal

Published on September 18, 2018
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