The Indian government has taken a number of steps in the recent years to reduce the import dependency of the country for edible oil. India spends billions of dollars every year to import edible oil to meet domestic consumption demand.
Edible oil import in India has grown remarkably in recent years due to tumbling domestic production levels. Soy oil import in India expanded with CAGR of 18 per cent in the last 6 years, while import of crude palm oil has grown 1 per cent during the period.
Considering the huge import of edible oil, which leads to ample outflow of US dollars from India, the Indian government tries to curb import to protect the interest of domestic oil processors and oil seeds cultivators. Not only does the government change import duties according to the supply and demand situation, but also revises import tariff each fortnight to regulate the import in the country.
The Indian government increased import duties twice on crude as well as soft edible oil in 2018 to protect the interest of oilseeds producers in India. In this term, import duty on crude soybean oil was increased up to 35 per cent from 30 per cent in June 2018 whereas it was revised upwards from 35 per cent to 45 per cent for refined soybean oil. Similarly, the government hiked the import duty on crude palm oil (CPO) from 30 per cent to 44 per cent in March 2018, the highest level in recent years, while the same was raised from 40 per cent to 54 per cent for Refined Bleached Deodorized (RBD) palmolein.
Impact of higher duties on edible oil was realised in oil year 2017-18 as total edible oil import dropped by 3 per cent on yearly basis and reported at 14.5 million MT compared to 15.07 million MT of the prior year. Largest fall in import was seen for soy oil, which dropped by 8 per cent YoY and reported at 3.04 million tonnes. Meanwhile, import of CPO increased 2 per cent YoY to 6.4 million tonnes due to widening prices gap between soft and crude edible oils. Ratio of crude and soft oil import increased to 90:10 in year 2017-18.
The year 2019 started with another development for the Indian oil industry as the government cut the import duties on CPO and Palm Olien by 4.4 per cent and 9.9 per cent to 44 per cent and 49.5 per cent, respectively. The downward revision in import duties has come in the wake of the India Comprehensive Economic Cooperation Agreement (MICECA) which was signed between Malaysia and India in October 2010. The provision under MICECA defines the effective duty on all products to be imported from Malaysia to India would not be more than a mutually agreed threshold limit. In the case of crude palm oil (CPO) and refined edible oil, of which India is a big importer, the duty would not be more than 40 per cent and 45 per cent, respectively. The provisions of this agreement have become effective from January 1, 2019. However, this duty structure is not applicable for ASEAN countries as import duty on crude palm and palm olien is fixed at 40 and 50 per cent, respectively. It means India will have different duty structure for edible oil import which will vary destination-wise.
Duty cut on palm oils for both soft and crude category could be harmful for the growth of the Indian edible oil industry as most of the manufacturing and refining associations in India are looking unhappy with this decision. Repercussion of duty revision is likely to be seen in the coming months as imports of soft palm oil could surge up significantly due to shrinking duty difference between crude palm oil and palm Olein oil from 10 per cent to 5 per cent in year 2019. India is likely to realise bumper production of soybean in 2019 and now lower duty on soft palm oil could boost up the overall supply of edible oil in India. Indian refiners want the duty difference between crude and soft palm oil to be minimum 15 per cent. Considering the current situation of the Indian edible oil Industry, downward revision on imports duties on soft edible oil looks questionable. The government should formulate policies which not only encourage the production of oil seeds in India but also prove fruitful for the growth of Indian oil industry.
The author is a fundamental research analyst with Karvy Comtrade