The unseemly controversy within the government over a proposed change in the rate of customs duty on imported refined and unrefined edible oils is not only unwarranted, but also glosses over critical problems of the oilseeds and oils sector that is crying for policy attention.
Indeed, the country’s refining industry captains are in the habit of demanding changes in the rate of customs duty — either a hike or a reduction — depending often on their trading positions. Again, more often than not, farmers and farm-gate prices are used as a prop or ploy to demand a hike in duty. Consumers come handy when a duty reduction is sought.
Indeed, a part of the country’s edible oil imports have always been done with speculative intent. It is an anticipated play on change of duty or currency movement or change in policy. It is the trade that often benefits from a duty change, rather than growers and consumers.
The current scenario is no different. Port-based and pipeline stocks have been steadily rising since the beginning of this year and currently stand in excess of 2 million tonnes.
Any increase in duty will only benefit those holding this inventory. A part of the inventory is speculative with the hope that the government will succumb to lobby pressure and hike the rate of duty.
Obviously, there is little justification for raising the rate of customs duty. The Agriculture Ministry’s recommendation for a hike in duty has little merit because oilseed prices are unlikely to recover to levels that growers would find remunerative.
Indeed, policymakers must examine non-price and non-trade initiatives to strengthen the country’s oilseeds and oils sector. Instead of discussing variation in customs duty — which is nothing but a short-term fix of dubious outcome — the Food and Agriculture ministries should examine the structural issues that stymie oilseeds production and processing.
India’s oilseeds yields are notoriously low at about 1,000 kg a hectare. It has been this way for long years. What has the government done over the decades to raise productivity and production? Surely, the Farm Ministry is answerable. Its production programmes, minimum support price policies, market intervention efforts and other actions have been unequal to the challenge.
Because of the failure of successive governments, the country’s dependence on imported oils has gone from bad to worse and currently stands at an alarming 70 per cent. We spend as much as $10 billion (over ₹65,000 crore) a year to import about 14 million tonnes to meet our consumption demand. But who cares?
Downward pressureThe Food Ministry’s stand that duty on unrefined oils may be reduced so as to widen the duty differential between refined and unrefined oils also lacks merit and betrays a lack of understanding of the market fundamentals.
Under the lead of palm oil, international edible oil prices are already under enormous downward pressure. Additionally, the rupee has gained strength over recent months, making imports so much cheaper.
If anything, a stronger rupee is an indirect reduction in duty on imports.
Traditionally, August to October is a period of a series of festivals when demand increases manifold. It would be an inappropriate period to effect any duty change.
The time to review the rate of duty would be when kharif oilseeds crop numbers are available. But this should not divert attention from the fundamental issue of urgent need to address structural problems of the oilseeds sector.
The writer is a global agribusiness and commodities market specialist. Views are personal