Jakarta's palm oil curb will test India

India may have to look for palm oil elsewhere, with Indonesia deciding to use more of it as a biofuel. Jakarta will stop importing diesel this year as it steps up fuel doping to improve energy security. Which puts India in a bit of a spot. India imports almost all of its palm oil used as food. Indonesia is the principal source, with Malaysia and, to a lesser extent, Thailand fulfilling India's need for edible oil. Apart from raising the palm oil blend in diesel to 50%, Indonesia is developing palm oil-based petrol as it phases out other fuel imports by 2030.

India's choices in this scenario are limited to diversifying its imports because raising domestic production of palm oil is not feasible. Southeast Asia receives the rainfall needed for palm oil production that India's irrigated agriculture cannot sustain. Global production concentrated in Indonesia and Malaysia will also be challenged to seek geographical extension. Palm oil supply is relatively inelastic to Indian demand, and the country may have to look for alternatives among edible oils. Around half of edible oil consumed in India is imported, principally palm, soya and sunflower oils. There may be scope to increase domestic production of less water-intensive vegetable oils, but that is a longer-term solution.

The food-versus-fuel competition adds a new dimension to India's twin insecurities. Global efforts to keep fuel inflation under control have a correlation to food inflation. The effects are local, but the palm oil story shows how this can become general. Policy tends to prioritise food as an anti-inflation strategy because of its regressive nature - food inflation hurts the poor more than any other form of inflation - yet, rising fuel vulnerabilities shape responses. Food and fuel inflation are inextricably linked and cannot be approached in silos. India's size as a consumer of food tends to shape global supply responses efficiently. Palm oil may be the exception because of geographical constraints.