Govt in Catch-22 situation on edible oil duty revision

After battling hard to bring down prices of oilseeds, the government finds itself in a piquant situation on the prices front ahead of the state and federal elections.

It is finding it tricky to strike a balance between the interests of oilseed farmers and consumer’s demands in the backdrop of crashing global edible prices, that is dragging down local rates.

Domestic cooking oil prices have hit rock-bottom levels in the recent weeks as a result of the government’s anti-inflationary measures and sliding crude oil prices.

Vegetable oils such as palm and soy take price cues from crude oil for alternative usage as bio-fuels. Falling global prices have eased domestic edible oil market prices in India by 25-30 per cent in the last two months.

Leading industry body Solvent Extractor’s Association (SEA) has demanded duty hikes on edible oil imports to arrest falling prices and help farmers, who are in the midst of soybean and groundnut crop harvest, get better prices.

But any fresh levy on imports of palm and soy oils would mean the consumer will have to pay higher prices for his basic cooking medium and this in turn, will push up inflation which after several months is showing signs of stability, though still in double digits.

Will the government have the courage to take a politically risky step of imposing duties ahead of elections?

In the run up to the general elections next year, six states are going to polls in November and December, including the key oilseed-growing state of Madhya Pradesh. General elections are scheduled for May 2009.

It will be a tight ropewalk for the centre to address both farmers’ and consumers’ interests.

“Time has now come for an upward duty revision in edible oils,” said Sandeep Bajoria, chief executive of Mumbai-based edible oil trading company Sunvin Group.

He said import duties should be revised upwards to ensure that prices do not fall further and act as a deterrent for oilseed growers.

India scrapped import duty on crude edible oils, and imposed a flat 7.5 per cent duty on refined oils in March after edible oil prices started rising steeply and threatened to spur inflation further.

India cut import duties in phases from 52.5 per cent to 7.5 per cent for refined cooking oils, while brought down 40-45 per cent duties on crude varieties to zero level.

India consumes 11-12 million tonnes cooking oil each year with about 5 million tonnes sourced through imports, while the net oil supplies from domestic sources range between 7-8 million tonnes.

Industry officials fear peak crushing of summer-sown oilseed crops such as soybean and groundnut around middle of next month would put further pressure on prices and discourage farmers from rabi oilseed plantings.