G Chandrashekhar

Edible oils: Need to boost domestic production

G Chandrashekhar | Updated on March 05, 2019 Published on March 05, 2019

Oilseeds Production push   -  Bloomberg

The government, to support the farming community, must shift its focus from tariffs and trade to structural issues

The year 2019 is going to be no different from 2018 when the world faced several uncertainties and risks; and if anything, this year is going to be a lot more challenging. Geopolitical tensions are likely to continue, monetary policies of central bankers are diverging (rate hike somewhere, rate reduction somewhere and negative rate elsewhere), several event risks including Brexit voting, elections in India and Indonesia and of course, weather risks with incipient signals of El Nino.

The most important concern for the markets will of course be global growth. Risks to global growth are real. Already growth in the EU and Japan is tepid. There is enough evidence of the world’s second largest economy China slowing. Indeed, the world’s largest economy, the US, risks a slowdown in the second half of the year as the positive effects of stimulus fade.

It is also becoming increasingly apparent that the global policy context is becoming more and more complex. Countries and governments face a dilemma — how best to judiciously reconcile domestic socio-economic and political compulsions with international obligations.

We have seen often, domestic compulsions override everything else including international obligations. Far from looking outward, countries are beginning to look inward. Liberalisation is now gradually giving way to protectionism.

Therefore, countries must tailor policies to meet the demands of specific circumstances. No country can be expected to blindly follow liberalisation for sake of liberalisation. Trade and tariff policies must serve larger socio-economic interests; and should be dynamic.

The question: Is India ready to face the changing global economic landscape? Due to integration of the domestic market with the global market through trade and investment route, global headwinds will impact the country.

It is in this context that one must examine the policy challenges as far as the Indian oilseeds and vegetable oils sector is concerned. For decades we have pursued a highly liberal edible oil import policy to advance consumer interest. Yet, until very recently, we followed a highly restrictive export policy for the same commodity. Restrictions on export — especially of agricultural commodities — are brazenly anti-farmer. Thankfully, good sense has finally prevailed within policymaking circles and export restrictions have been done away with.

We followed a policy of zero-import duty on vegetable oils for long years. Although it was a facile option, one can argue that such a policy was the compulsion of the time. But we did little to promote domestic output. We remained smug because of the availability of low priced edible oils in the world market. Oilseeds cultivation faced and continues to face benign neglect.

Now, the times are different. We face low domestic prices for many crops and farm distress. Farmers’ protests have become the order of the day. There is now a political compulsion to address the grave situation.

Import pain

Extraordinary situations demand extraordinary remedies. We need to objectively evaluate the costs and benefits of a liberal import policy. Our edible oil tariff policy has achieved little, and certainly achieved nothing to advance growers’ welfare. If anything, our import dependence has worsened to about 70 per cent of consumption; and it does not come cheap.

We spend $11 billion (₹77,000 crore) annually on import of about 14 million tonnes of oil. That’s why we need to revisit the rationale of liberal import policy.

While the country cannot escape edible oil imports to meet the domestic shortfall, it is possible to maximise the socio-economic impact of the import trade and tariff policy that would at once judiciously advance interests of domestic oilseed growers and edible oil consumers. Unregulated import of edible oil and rampant speculation stymies domestic output growth. So, import should be regulated in a way that goes beyond mere duty hikes. We should fix an annual ceiling on import; and the import trade should be monitored strictly. Registration of import contracts, tracking oil quantity, type and price, and monitoring of physical arrivals will provide policymakers with adequate data to make proactive policy intervention. It is absent today.

Unfortunately, for almost two decades, New Delhi has focused on trade and tariff measures as tools of intervention. These have yielded little to boost domestic output. The structural issues of oilseeds production that have been overlooked for years should now become the focus of policy attention. The oilseeds sector deserves policy support, research support and investment support. It is time for creative disruption of the extant policy.

Excerpts of a speech delivered by the author, at the recent Fats and Oils International Conference organised by Oil Technologists Association of India in Mumbai. Views are personal.

Published on March 05, 2019
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