Vanaspati traders feel the heat from cheap imports

KOLKATA: The domestic vanaspati industry is feeling the pinch amid large inflows of cheaper vanaspati from Nepal, Sri Lanka and Bhutan. Unable to take the heat of cheaper imports which has cornered 40% of the domestic vanaspati market, nearly 150 of the 264 installed vanaspati units in the country were forced to shut their units.

Those which are still in the business are running at low capacity. As a result, vanaspati production in India has plummeted to 11 lakh tonnes, which is just 20% of the industry’s installed capacity of 50 lakh tonnes.

The situation has become such as the vegetable fat arriving from these countries are selling cheaper by Rs 40-50 per kg than the Indian variety at its home market. No doubt, duty-free import of vanaspati from those countries, coupled with higher input cost of Indian vanaspati have created the price differential.

Under the Indo-Nepal Trade Treaty, up to a tariff rate quota (TRQ) of 1 lakh tonne vanaspati is allowed to enter India per annum, without attracting import duty. For Sri Lanka, the duty-free TRQ limit is fixed at 2.5 lakh tonnes under the FTA with that country. Duty-free import of vanaspati is also allowed from Bhutan without any quota-cap. In 2006, about 60,000 tonne duty-free vanaspati entered into India from Bhutan.

Industry said this is the official estimate. Taking advantage of porous borders and no canalisation of imports from Sri Lanka, around 6 lakh tonnes vanaspati is now entering India from the three countries, without paying import duty.

According to the Vanaspati Manufacturers’ Association (VMA) and Indian Vanaspati Producers’ Association (IVRA), in addition to duty-free imports, there is no check on the quality of imported vanaspati as per the Prevention of Food Adulteration (PFA) Act. This is crushing the local industry, they said.

Added to the woes, import duty on crude palm oil — the main ingredient of vanaspati — in India is at a much higher rate than that of in the neighbouring countries, said VMA executive secretary S Gurumoorthy.

Even after a 33% cut in January, customs duty on CPO in India is fixed at 60%. On top of it, importers have to a 3% education cess. With this, import duty on CPO in India is at 61.8% against nil import duty in Nepal and a nominal duty of $25 a tonne in Sri Lanka.

IVRA executive director IR Mehra said against the scenario, the abolition of a 4% CVD in 2007-08 on all imported items including CPO, makes hardly any difference to local vanaspati producers.

Mr Gurumoorthy added that to save local units, the industry has once again appealed to the government to implement recommendations of the inter-ministerial group, which has submitted its report to the prime minister’s office about two years ago.

If there are problems to drop the provision of duty-free vanaspati import from the trade treaties with Nepal and Sri Lanka, the government is requested to reduce the customs duty on CPO from 60% to 20%, exclusively for manufacture of vanaspati and bakery shortening, he said.

However, the duty concession should be granted only to working vanaspati units on actual user condition, prescribed under Customs (import of goods at concessional rate of duty for manufacture of excisable goods) Rules, ‘96.

To check misuse of concessional tariff, CPO import quota for each vanaspati unit may be allocated by the directorate of vanaspati, vegetable oils & fats, under the food ministry, suggested the association.

ratna.ganguli@timesgroup.com