Commodities

Customs duty standardisation on edible oils, pulses: Much to learn from developed nations

| Updated on February 17, 2021

The Union Budget, tabled in Parliament by Finance Minister Nirmala Sitharaman on February 1, has standardised at a lower level different rates of customs duty on various vegetable oils and pulses.

The basic customs duty is now 15 per cent ad valorem for all varieties of cooking oil (palm, soya, sun, etc), while pulses the duty is 10 per cent ad valorem (desi chickpea, kabuli chickpea, lentil, etc).

For pulses, the WTO bound rate of duty is 100 per cent for all types of pulses except peas for which it is 50 per cent. However, the applied rate on chickpea (chana) was 60 per cent and on lentil (masur) 30 per cent.

In case of vegetable oils, there is a wide variation of bound rate among various oils. The bound rate is as high as 300 per cent for palm oil, while on other oils it varies between 45 and 100 per cent. Again, the applied rate is much lower than the bound rate.

Clarity in trade

The Budget has now rationalised and standardised the rate of basic customs duty at a lower level. The move not only brings greater clarity, but is also intended to address the objections raised by some supplier countries during India’s Trade Policy Review (TPR) at the World Trade Organization early last month.

During the TPR meeting, the US and EU flagged certain trade-related issues including increase in import duties. To be sure, from time to time India varies (often hikes) the rate of customs duty on import of essential food commodities based on domestic production, demand, farm-gate prices, consumer prices, inflation risk and so on.

The loss of revenue caused by reduction in basic customs duty on import has been compensated for by the imposition of a new cess to create a new Agriculture Infrastructure Development (AID) Fund.

Agri infra fund

The rate of AID cess for edible oils and pulses has been fixed in a way that there is no loss of revenue for the exchequer, though States’ share of basic customs duty would stand reduced.

The fund is intended to boost the country’s agri-infrastructure facilities currently in a state of despair. Poor road connectivity, decrepit marketing yards, lack of primary grading/sorting facilities and quality-related transparent pricing are key issues. These need to be upgraded.

There is much to learn from OECD (a group of 30 developed countries) which provides about $350 billion as farm subsidy annually, of which about $70-80 billion are spent on what is called ‘General Services’ covering crop surveys, testing facilities for assaying, quality certification, export promotion and so on. These are crop-neutral services.

Interestingly, Agricultural Produce Marketing Committee mandis (traditionally under the control of the State governments), too, are eligible to access the new AID fund for augmenting infrastructure facilities. This should help address the concerns of some stakeholders who believe private markets would ring the death knell of APMC market yards.

Import of edible oil and pulses from Least Developed Countries is exempt from customs duty. It has been clarified that such import will not attract AID cess also.

The writer is a policy commentator and commodities market specialist. Views are personal

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Published on February 17, 2021
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