Refined edible oil import duty increase to help refineries

Operating capacity and margins to go up which they may pass on farmers for better realisation of seeds

Though less, the 2.5 per cent increase in customs duty on refined edible oil (olien) is likely to reverse the import trend. Refineries might finally get to focus more on the import of crude oil instead of refined oil.

The government raised the import duty on refined, bleached and diodised (RBD) palmolien to 10 per cent from 7.5 per cent, while that on crude palm oil (CPO) was kept unchanged at 2.5 per cent. The raise, however, has increased the differential duty between RBD and CPO at 7.5 per cent from five per cent. Domestic refineries’ business is expected to become viable.

“Refineries will be able to import more of CPO instead of RBD. With the increasing import of RBD, Indian refineries were losing business to Indonesia. Given the government of Indonesia does not change the export duty in line with the importing country’s duty structure, the import of CPO would go up, with a proportionate increase in the operating capacity of refineries,” said Laxmichandra Agarwal, president, Central Organi-sation for Oil Industry & Trade (COOIT).

To protect the interest of their local refineries developed in three-four years, the government of Indonesia has kept export duty on RBD higher at 12 per cent than that on CPO at five per cent.

India imported eight million tonnes of CPO in the oil year (November 2012 - October 2013), a marginal decline of three per cent from the previous year. But, the import of RBD shot up 40 per cent to 2.2 million tonnes in 2012-13. As a result, the share of RBD in imports of edible oil shot up to 21 per cent from 16 per cent the previous year.

“This action is too little, too late. It may not help the refining sector much, suffering for a year because exporting countries (Indonesia) have an inverted duty structure. They levy a much higher export duty on the export of crude oil than on refined oil. This difference is 7.5 per cent. Thus, ideally the import duty on refined oil should be 14.5 per cent more than the duty on crude oil. We hope the government will consider the demand of the vegetable oil refining sector,” said Dinesh Shahra, founder and managing director, Ruchi Soya Industries.

Ashok Lahiri Committee recommended the government in 2006 to keep the differential duty at 7.5 per cent. The sector has achieved the figure after seven years. During this period, however, the government of Indonesia, from where India imports over 90 per cent of edible oil, has installed huge refining capacity.

“Had we achieved the differential duty level at 7.5 per cent around that time, the sector could be satisfied. Today, it requires at least 10 per cent duty differential for survival. Nevertheless, the increase is welcome, though late,” said Atul Chaturvedi, chief executive, Adani Wilmar, the producer of Fortune edible oil. The rise will improve refining capacity, below 30 per cent.

“Edible oil price may increase marginally. But, it will help refineries better margins, which they would be able to pass on to farmers for higher realisation of seeds,” said Vivek Puri, managing director of Puri Oil Mills, a Delhi-based edible oil producer.