Edible oil industry urges government to impose higher import tariffs on refined palm oil.

KOLKATA: The edible oil industry on Friday said that it faces an existential threat to the duty structure prevailing in India and the incentives given by major refined oil exporting countries like Indonesia and Malaysia to their domestic refineries.

The edible oil industry in India has made an investment of Rs 10,000 crore and employs around 5 lakh people.

In a release issued by the Solvent Extractors Association of India (SEA) said thatMalaysia has all along protected its refining industry by allowing crude palm oil export only under a quota. Now Indonesia has followed suit. ""Today the Indian industry faces an existential threat thanks to the duty structure prevailing in India and the incentives given by major refined oil exporting countries like Indonesia and Malaysia to their domestic refineries,"" the release added.

Since October 2011, Indonesia has also protected its domestic refiners in another way as well. The export tax on crude palm oil export is much higher than refined oil. The export duty rates are changed each month in line with market prices of palm oil. Higher the palm oil prices, higher is the export duty, and consequently higher is the difference between export tax on crude palm oil and refined palm oil / palmolein.

All this has a direct impact on the Indian domestic refined palm oil industry. The differential between the CPO and Refined Palmolein which was US$ 80 to $100 pmt earlier today stands at only US$ 10 pmt. The result is that imported refined oil costs less than domestic refined oil.

While Malaysia and Indonesia the two biggest exporters of palm oil have subsidized their refiners, the Indian government has moved in the opposite direction. In January, this year it imposed a duty of 2.5 % on CPO thereby lowering the duty differential between imported and refined palm oil to 5 % from the earlier 7.5 %. This despite the fact that a committee headed by former chief economic advisor to the Government of India, Dr Ashok Lahiri had recommended in 2006 that the duty differential be maintained at 7.5 per cent. Industry bodies such as the Solvent Extractors Association of India (SEAI) had protested the move saying that this would hit the industry hard.

The current scenario is even grimmer. There is now a very real scenario that refiners would start defaulting on their loans and this in turn would saddle banks with increasing non-performing assets (NPAs). Already one refinery has shut down while many others are struggling. This at a time when the NPAs of banks are already increasing due to an overall economic slowdown.

Also the industry had invested Rs 10,000 crore in creating 15 million tonne of refinery capacity after the government for the first time in the year 1999, introduced a duty difference between Crude Edible Oils and Refined Oils, with the purpose to encourage value addition of refining within the country. Clearly there has to be consistency in government policy especially at a time of industrial slowdown and foreign direct investment is also slowing down. Incidentally, the MNCs too are protesting the lack of consistency in government policy.

The shutting down of refineries will mean that even the soap industry will be affected as a key input for this industry Stearin is generated as a by-product during the refining process.

The problem is now a little too complex to be solved by a restoration of the status quo that prevailed till January this year. More needs to be done. The new tariffs to be introduced should take into account the prevailing duty structures in Malaysia and Indonesia. As mentioned earlier, Indonesia, in order to protect its own refining industry has introduced a variable duty structure, whereby a higher duty is levied on export of CPO and lower duty on Refined Palm Oil/Palmolein.

To counter this, and to protect its own refining industry, the Indian Government should levy higher import duty on Refined Palm Oil/Palmolein by differential duty in Indonesia plus 7.5% as fixed by Lahiri Committee. This duty difference should be 13.5%.

Source : economictimes.indiatimes.com