The reduction will lead to higher imports of palm oil by the world's biggest edible oil buyer in coming months as it would narrow the difference between the tropical vegetable oil and competitors such as soyoil and sunflower oil.
The duty on crude palm oil was lowered to 40 percent from 44 percent, while a tax on the refined variety was cut to 50 percent from 54 percent, according to the notification issued late on Monday. The cuts took effect on Tuesday.
Malaysian shipments of refined palm oil will be taxed at 45 percent compared with 54 percent earlier, the government said in a separate notice.
In March 2018, India raised the import tax on crude palm oil to 44 percent from 30 percent and lifted the tax on refined palm oil to 54 percent from 40 percent.
Palm oil has being more competitive due to the duty reduction and this will lead to higher imports from January onwards, said Sandeep Bajoria, chief executive of the Sunvin Group, a Mumbai-based vegetable oil importer.
India primarily imports palm oil from Indonesia and Malaysia and soyoil from Argentina and Brazil. It also buys small volumes of sunflower oil from Ukraine and canola oil from Canada.
Its palm oil imports dropped 6.4 percent from a year ago to 8.7 million tonnes in the 2017/18 marketing year ended in October, according to Solvent Extractors' Association (SEA), a Mumbai-based trade body.
Indonesia and Malaysia, the top two palm oil producers, were seeking a reduction in the import tax by New Delhi as inventories were rising in both countries due to higher output.
India's palm oil imports could have fallen in December but will jump this month as some importers had delayed shipments in anticipation of tax cuts, said B.V. Mehta, executive director of the SEA.
The effective duty difference between crude and refined palm oil has narrowed to 5.5 percent from 11 percent for shipments from Malaysia, which could lead to higher imports of refined palm oil, Mehta said.
"This is a death knell for the domestic refining industry and will halt expansion of palm plantations in the country," he said.
India relies on imports for 70 percent of its edible oil consumption, up from 44 percent in 2001/02.
"Traditionally, Indonesia corners the bulk of India's palm oil market. The duty reduction will now allow Malaysia to raise its share," said a Mumbai-based dealer with a global trading firm.
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