Veg oil duty hike too little to check imports

New Delhi: India has raised the import taxes on crude and refined edible oils by 5 percentage points, but traders said the increase was too little to make any difference to the flood of supplies from Malaysia and Indonesia given rock-bottom world prices.

Consumption in the world`s biggest buyer of cooking oils is rising rapidly, and the low world prices are throwing several Indian mills out of business and forcing farmers to switch to crops other than oilseeds, such as soybeans.

That is hurting Prime Minister Narendra Modi`s goal of becoming self-sufficient in edible oils this decade, prompting the government on Friday to raise the duty on crude vegetable oils to 12.5 percent and on refined oils to 20 percent.

But B.V. Mehta, executive director of trade body the Solvent Extractors Association of India, said imports will still be 21 percent higher at 14 million tonnes in the year to October as local demand rises by as much as 5.5 percent annually.

"Although we welcome the government move, we were expecting a minimum 10 percentage point duty increase," Mehta said.

Indian consumes about 19 million tonnes of vegetable oils, widely used in its calorie-heavy, deep-fried foods. Annual demand rises at least a million tonnes only on account of the population jumping by 22 million.

The dependence on foreign oils is as high as 70 percent, though the fall in prices in palm oil by USD 300 a tonne since January last year has kept the import bill around USD 10 billion a year.

GLOBAL GLUT

Apart from a global glut, the sharp drop in petroleum crude prices have meant that too little palm is getting diverted to convert into renewable fuels. Last year, about 30 percent of the 200 million tonnes of palm oil produced in the world was used for bio fuels and other industrial use.

That is not going to happen this year, said Mehta, keeping pressure on prices and boosting imports into India.

"The government should also have ensured a bigger duty differential between crude and refined oils to protect the domestic industry," said Mehta.

The cost of India`s purchases of edible oils, the third-highest item on its import bill after petroleum and gold, were expected to rise about 40 percent to USD 14 billion this fiscal year.

Massive imports have cut local soybean prices by about a fifth in the past four months, discouraging farmers from expanding oilseed planting. Still, local soyoil is much costlier than imported palm oil.

In the past 20 years, India`s edible oil output has risen only about a third. Imports, however, have surged twelve fold.