Govt shuts sop, hikes customs duty on edible oils

NEW DELHI: When it comes to edible oils, the second largest item on India’s import bill, the Budget is far away. The government on Tuesday sharply raised customs duties on edible oils to take back the impact of concessions it had given the industry under political pressure.

These measures are unlikely to make any significant dent in consumer budgets. Senior officials said the changes had been made to bring tariffs in line with international markets.

Just a fortnight ago, the finance ministry removed a hard-to-pass test on crude palm oil, that effectively brought the duty down from 75% to 65%. It had also simultaneously aligned the tariff value on all edible oils in line with international prices. By raising duties, the government has neutralised the revenue effects of those sops.

From Wednesday, duties on crude palm oil will rise from 65% to 80%, and from 75% to 90% on RBD palmolein. The tariff values, or the government-stipulated price at which customs duty on each shipment is charged, has also been reduced.

However, as the betacarotene test is now gone, the government has been unable to plug the loophole which allows refined oils to masquerade as crude oil and enter at lower duty to undercut the domestic market.

The demand for a duty hike was first made by the Solvent Extractors Association, who pleaded the interest of rapeseed farmers. The current increase in duties will ensure that domestic prices do not fall too low to make the harvest economically unviable for farmers.

The domestic oilseeds-based sector is estimated at Rs 61,000 crore (inclusive of imports/exports). India is the world’s fourth largest vegetable oil economy, with 15,000 oil mills, 600 solvent extraction units, 230 vanaspati plants, and over 500 refineries employing over a million people. India annually consumes 11m tonnes of oil, but the per capita consumption is a poor 10/kg, considerably lower than other developed nations.

The price of edible oils is the key driver of demand. Only 9% of all oils are sold in branded packs at the retail level, with a market size of Rs 5,000 crore. While edible oil demand overall is expected to grow by 5-6% per annum, demand for branded oils is growing by more than 10%.