Now that the Government has allowed both raw and refined sugar imports duty-free, it is time the same logic is extended to edible oil also.
If anything, the case for unifying the rate of duty on both crude and refined oils at zero is more compelling than ever before.
On March 18, 2009, the Government reduced the rate of Customs duty on imported crude vegetable oil to zero and on refined oil to 7.5 per cent. It was, of course, the compulsion of the time. The country was in the election mode and food inflation was raging.
Import of vegoils
Ten months down the line the country has imported unprecedented quantities of crude vegetable oils, mainly palm oil, but the consumers have not had a good deal. Indeed, they are short-changed in terms of quality.
April-December 2009 arrivals totalled 62.2 lakh tonnes (up from 49.1 lakh tonnes during the same period previous year), an increase of over 13 lakh tonnes in a nine-month period after duty on vegoils was drastically reduced. Of the 62.2 lakh tonnes of aggregate imports, crude palm oil alone accounted for 38.1 lakh tonnes. During the period, refined palmolein arrivals surged to 9.80 lakh tonnes. In addition, we have had soyabean oil and other oils flowing in.
Despite import of record volumes and burdensome stocks across the country – storage capacities are full and tanks rentals have shot up – the effect of such massive imports and inventory is not markedly felt on edible oil in the open market. Prices have not declined to levels that bring real relief to consumers.
This is primarily because the market is dominated by large refiners who call the shots every day. Prices are dictated by them. Unless this stranglehold of large refiners on the edible oil market is decisively broken, consumers may not obtain any real price relief. The time lag between crude oil import and refining and marketing creates a window of speculative opportunity.
The speculative window needs to be closed and oils must be made available to the market continuously. One sure way to achieve this would be to withdraw the existing 7.5 per cent Customs duty on refined oils which will encourage more traders – big and small – to participate in the import business– and ensure that cooking oil is distributed without delay and without anyone being allowed to hold speculative positions.
Duty-free import of refined oils will make for steady flow of ready-to-market refined oil. Nothing, of course, would prevent large refiners from importing crude oil for refining and marketing, but the opportunities to profit from market volatility would be reduced. Consumers will be the ultimate beneficiaries.
disposal of stearin
A major question that has remained unanswered for long is the disposal of stearin – the solid fraction of palm oil which is not edible per se – that is produced. There are limits to using stearin as industrial oil for soap making and similar purposes. But the quantum of stearin that India produces following the flood of crude palm oil arrivals is simply too big for the country's industrial sector to absorb.
Imports of 50 lakh tonnes of crude palm oil would produce a staggering 10 lakh tonnes of stearin. The possibility of stearin being blended with other oils for manufacture of vanaspati, for instance, cannot be ruled out. Institutional consumers such as restaurants and sweetmeat shops that constantly look for cheapest cooking oil would be ready buyers of such sub-standard oil.
In other words, the by-product of palm oil import that is stearine is palm off to unwary consumers as cooking oil, something that is sure hurt the health of people over time. It is surprising why the Government never bothered to examine this pernicious aspect of crude palm oil import.
Edible oil prices have not attracted the kind of mass attention that sugar and pulses have. Duty-free import of vegetable oil will curb speculation in the marketplace and ensure sustained flow of the commodity to the benefit of consumers.
Failure to strictly monitor the quantity of imports, quality of oil being sold in the market and disposal of residue makes the Government culpable.
Source : Business Line