Reducing edible oil imports

India needs a stable policy framework

Just days after Union Finance Minister Nirmala Sitharaman spoke in her Budget speech about boosting the output of oilseeds to reduce dependence on imports for edible oils, the government has opted to extend stockholding curbs on oilseeds and edible oils, which are bound to prove counterproductive. This decision also ignores the caution voiced in the Economic Survey against knee-jerk reactions to price fluctuations of essential items, which send wrong signals to domestic producers. The move, moreover, is mistimed for several reasons. For one, the prices of most cooking oils are either stable or on the slide ever since the stock limits were originally announced in October last. However, only six states — Uttar Pradesh, Karnataka, Himachal Pradesh, Telangana, Rajasthan, and Bihar — had followed the Centre’s directive then and notified limits on the stocks that could be held by traders. Now, the government has gone a step further and has specified the restrictions to be imposed in the remaining states as well. This measure has followed the earlier equally ill-advised step to abolish import duties and drastically slash the agri-cess on edible oils from 20 per cent to merely 5-7.5 per cent.
 

The trade restrictions are uncalled for at this stage also because of an expected bumper rabi harvest of oilseeds. The area under mustard, the main rabi oilseed, is estimated to have expanded by 23 per cent and the crop stand is said to be excellent, thanks to salubrious weather. Preliminary estimates put the likely output of mustard at over 11 million tonnes, far higher than last year’s 8.5 million tonnes. Any restraint on stockholding at this stage would tend to keep the buyers away from the market, thereby, depressing the prices during the post-harvest marketing season to the detriment of the growers. Low price realisation would deter the farmers from raising oilseeds production in the next kharif as well, thus perpetuating the dependence on purchases from abroad. The recent decision to allow the import of genetically modified soyameal, used as livestock feed, has also served as a major disincentive for higher local production. India has already become the world’s largest importer of vegetable oils, buying 14-15 million tonnes of these oils annually to meet its requirement of 25 million tonnes.

Heavy dependence on imports for a mass-consumed kitchen staple like the cooking oil is untenable, as also dicey, because the bulk of the imports are of palm oil, sourced from just two countries — Indonesia and Malaysia. Any disruption in supplies can pose problems for India. Such a situation is unwarranted for another reason. The country has the potential to grow enough oilseeds and edible oils to meet its needs. The Oilseed Technology Mission, set up in the mid-1980s, had shown the way to do so. It disallowed any market intervention as long as the prices remained within a reasonable band that struck a balance between the interests of producers and consumers. However, this policy was abandoned in the 1990s, frittering away the gains from the good work done by the mission. What is needed now is a similar policy framework to spur domestic production for the benefit of all stakeholders in the oilseeds and edible oil sector, including producers, processors and consumers.