Edible oil to become costlier by 4-5% on import duty hike

Industry welcomes move, says will make domestic edible oilseed extraction and refining competitive

Edible oil and oilseeds are likely to become costlier by 4-5 per cent due to the government’s decision to raise import duty on crude and refined oil, with immediate effect.

The Ministry of Commerce on Friday announced increase in import duty on both crude and refined edible oil, a demand that the domestic seed crushing and refining industry had been making over the past several months. Through the notification, the government raised import duty on crude and refined oil to 15 per cent and 25 per cent from 7.5 per cent and 15 per cent earlier.

This revision, however, continues with the duty differential on crude and refined oil at 10 per cent, which the industry had urged at 15 per cent make crushing of domestic seeds viable. The low duty differential at 7.5 per cent had discouraged domestic crushing of seeds resulting into many oilseeds prices slumped to below the minimum support price (MSP), leading farmers to switch to other remunerative crops such as cotton this kharif season.

“Following the goods and services tax (GST), which is positive for organised edible oil players, the increase in import duty on edible oils is a welcome step by the government. The strengthening rupee and low international edible oil prices combined with a duty differential favouring import of refined edible oils had led to immense pressure on the domestic industry with many crushing and refining facilities on the verge of closure. This will make domestic edible oilseed extraction and refining competitive and give a boost to Indian production of edible oils. It will also help refiners to import more of crude oils as against refined oils earlier for refining locally,” said Dinesh Shahra, Founder and Managing Director, Ruchi Soya Industries Ltd.

India imports around 15 million tonnes of edible oil to meet the country’s local consumption of around 25 million tonnes. Countries like Malaysia and Indonesia continued to promote their own refineries through levy of export duty on crude oil and exemption on refined oil.

Disparity over crushing of local seeds had left over 2 million tonnes of soybean uncrushed with over two-third of domestic crushing capacity remained idle. Mills preferred to import refined oil for blending directly with the oil of their choice for repacking and distribution for local consumption. 

“Edible oil prices would become costlier with mills would get parity from crushing local seeds. But, a marginal increase is unlikely to make a difference for consumers. This will also help increase seed prices for farmers to fetch prices high than the MSP which will encourage them to bring in more sowing area under rabi crop,” said B V Mehta, Executive Director, The Solvent Extractors’ Association of India (SEA), the apex industry body.

The government’s decision to raise edible oil import duty, however, has come a little late as over 80-90 per cent of kharif sowing has got over by now which reported a sharp decline in sowing area. Soybean, for example, has reported around 2 million ha of less sowing this season which feared lower output despite having forecast of normal monsoon. 

“Until farmers get remunerative price for their seeds, they would continue to switch to other crops. To make the seed price remunerative, the government needs to draw a long term policy to make India a step closer to self reliance,” said Atul Chaturvedi, Chief Executive Officer, Adani Wilmar Ltd, the producer of Fortune brand edible oils.

Meanwhile, a good monsoon will push up availability of domestic oilseeds and combined with the increased import duty, will allow Indian edible oil processors to compete on an even ground with imports.