Make it palatable

Import duty structure for edible oil needs correction

There is increasing evidence to suggest that both oilseed growers and the oilseed-based industry are struggling to survive. They are unable to compete with imported vegetable oil, which is cheaper, thanks to flawed policies and irrational import duties. About a fifth of the last season’s bumper soybean harvest is likely to remain uncrushed. Growers are unwilling to part with the stock at unremunerative prices, which have dipped by 20 to 30 per cent since June last year and are below the government-guaranteed support level. Initial trends of oilseed sowing in the current kharif season indicate that the area under these crops will shrink sharply. This will exacerbate India’s dependence on imports, which already stand at 70 per cent. The ground reality is in stark contrast to Agriculture Minister Radha Mohan Singh’s recent assertion that the government wants to make the country self-reliant in edible oil.

The root cause of the current dismal state of affairs is the ill-advised import tariff structure, which fails to guard the interests of oilseed producers and processors. The current import duties on edible oil, besides being too low considering the slump in the international vegetable oil market, tend to make the import of refined oil more attractive than crude or unprocessed oil. This inverted structure ends up supporting the refining industry in exporting countries at the cost of the domestic processing sector. As such, the Indian industry’s pleas to raise the import duties and correct the tariff inversion between crude and refined edible oil merit consideration. The present low food inflation makes it an opportune time to do so without hurting consumers.

Achieving self-reliance in edible oil is, indeed, not all that difficult. In the 1980s, a demand-supply gap of over 45 per cent was successfully bridged in a short span of just a few years. This feat — hailed then as the yellow revolution — became possible with the setting up of the Oilseeds Technology Mission in 1986 with full freedom to frame and enforce policies concerning production, pricing and import of vegetable oil. The strategy adopted and, more importantly, efficiently implemented by the mission focused on managing oilseed prices to incentivise local production and regulating imports in line with the domestic situation. Under this strategy, local oilseed and edible oil prices were allowed to fluctuate within a stipulated band that secured the interests of both producers, who needed remunerative returns, and consumers, who wanted cooking media at reasonable rates. 

Government interventions in the market, including well-judged changes in import tariffs, were undertaken when prices tended to breach the set limits. However, this sensible mechanism to sustain a steady growth in oilseed output and, at the same time, hold the price line was abandoned in the mid-1990s, frittering away its gains. Pricing policies since then have tilted in favour of consumers without balancing the interests of the other stakeholders, farmers and the industry. There seems little reason why the Oilseeds Technology Mission’s formula cannot be resurrected to bail out the edible oil sector and cut down on the unwarranted and heavy dependence on imports.