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The Solvent Extractors’ Association of India (SEA) has expressed concern over the implementation of the Tariff Rate Quota (TRQ) for the imports of soyabean oil and sunflower oil.
In a letter addressed to the Union Minister of Consumer Affairs and Food and Public Distribution and Commerce and Industry, Piyush Goyal, President of SEA Atul Chaturvedi urged the Government to reduce the import duty on soya and sunflower oil to zero for the time being till September instead of issuing TRQ. This will have a salutary effect on domestic edible oil prices.
He said the Government may review the situation in September and take a suitable call based on kharif oilseed production.
Government objective
He said the intention of the Government in introducing TRQ is to increase supply and help moderate prices in the country. Stating that it may end up squeezing imports, he said the actual effect of TRQ in the market place will only be felt after two-three months of its implementation. Prices have the potential to rise in the intervening period as festival season in India start shortly, and consumption also goes up once the rain sets in.
To have immediate impact it may be worthwhile to simply reduce duties on these oils immediately to achieve the desired objective.
He said the Government is binding itself by issuing TRQ for 4 million tonnes (mt) of soya and sunflower oil. “In case prices fall in the international market, a likely scenario, we would have trouble in increasing import duties and this may affect domestic oilseed prices,” he said.
Pros and cons
Highlighting the pros of TRQ, he said both soya and sunflower oil will attract zero duty and hopefully domestic values may fall to that extent. The impact may not be felt immediately since it requires lead time of two-three months for TRQ to become operational.
He said TRQ would send a strong signal to the Indonesian government against banning palm oil exports and putting importing countries like India under duress. He said the reduction in import duty via TRQ would reduce India’s dependence on palm oil as it would make it costlier in relation to soya and sunflower oil.
Historically India has managed to keep edible oil prices in check by tweaking import duties suitably in line with international prices of edible oils. Duties are reduced (as at present) when prices go up, and vice versa when international values come down. This had the desired effect on domestic values of edible oils.
Touching upon cons of TRQ, he said there is genuine fear of TRQ disturbing the smooth supply chain of edible oils. TRQ system create dual-duty structure whereby TRQ will have a nil duty and non-TRQ category will have a 5.5 per cent duty. This may result in restricting imports only under TRQ since other imports will be expensive and cannot be commercially viable in the edible business which operates at razor-thin margins.
He said the annual import of soyabean oil is 3.5-4 mt against which TRQ is 2 mt. There is a long lead time between the buying decision for soya and sunflower oil and arrival in India. As a result, once an importer exhausts TRQ he will not import under normal duty till other importers are having TRQ stocks. This could result in a shortage in the country till imports under normal duty starts arriving, he said.
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