India’s powerful vegetable oil import lobby has expressed its opposition to the pre-agreed reduction in customs duty on imported palm oil in terms of Malaysia India Comprehensive Economic Cooperation Agreement that came into effect from 2012.

Currently, the rate of customs duty on crude palm oil is 44 per cent and on refined palm oil 54 per cent levied on tariff value specified by the government from time-to-time. Under the agreement, India will soon have to reduce the rate of customs duty to 40 per cent on crude and 45 per cent on refined palm oils.

The import lobby has alleged that the proposed duty reduction on palm oils in terms of the bilateral agreement will have serious repercussions on our oilseeds economy and would lead to lowering of oilseed prices and thereby discourage oilseed growers.

This argument is simply self-serving and deserves to be ignored. More often than not large importers build excessive inventory of imported oils and then approach the government for a hike in customs duty using the pretence of protecting growers’ interest.

It’s a pity that New Delhi often falls prey to high pressure lobbying, hikes import duties and helps the importers make windfall gains. Clearly, the lobby of importers — many with strong overseas connections — does not want the cozy arrangement disturbed. A reduction in customs duty as envisaged in the agreement can potentially encourage new players to enter the market and snatch market share from existing participants.

Chronic shortage

There is a chronic shortage of oilseeds production in our country, which we are forced to bridge through imports.

The oilseeds sector lacks policy support, investment support and research support. Over the last 25 years, the country has been content with importing oils rather than boost domestic oilseeds production on a war footing. Policy-makers have erroneously focused on trade, tariff and prices instead of addressing the structural issues that stymie oilseeds production. No wonder, our import dependence has worsened and stands perilously at 70 per cent today. It is logical to expect that when a commodity is in short supply, prices must tend to remain firm.

But in our country, despite chronic shortage, oilseed prices have generally ruled at levels that provided no significant incentive to growers. This should be seen as a policy failure. On the other hand, the import trade is possibly happy with the situation of continuing domestic shortage as their interests have got well entrenched. The status quo deserves to be disrupted in the overall interest of growers and consumers alike. Import duty reduction as envisaged in the agreement should be implemented. But along with that, certain other steps are absolutely necessary.

Excessive imports (often to the extent of 15-20 lakh tonne a year) should be prevented through a system of fixing a formal annual ceiling of import which may be reviewed from time-to-time. Physical imports must be monitored first by ensuring that import contracts are registered with a designated authority and then physical arrivals tracked.

Today, New Delhi has no clue about the quantities contracted for, the type of oil, their origin, contracted prices and arrival time. So, decisions relating to tariff changes are based not on hard data but on hearsay or anecdotal statements.

An alarming fallout of excessive import is that many importers have got into what can be called ‘import debt trap’ caused by long credit period extended by overseas suppliers. This fosters excessive imports and a never ending loop of importing more, often to pay for past imports. This must stop because of the looming risk of huge bank loan defaults. The credit period should be no more than 30 days.

These initiatives — regulating edible oil import trade — are sure to boost domestic oilseed prices and benefit growers without compromising consumer interest. In the event, the reduction in customs duty as envisaged in the agreement will not pressure down domestic oilseed prices.

If anything it will incentivise domestic oilseed production and actually help advance the ‘Make in India’ campaign. It is necessary for the government to bite the bullet and for various ministries — Finance, Commerce, Food and Agriculture — to work together for a holistic policy. It is imperative we do all that it takes to boost domestic production and reduce dependence on import.

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