Even as Indonesia announced a sharp reduction in export duty on refined palmolein, Indian refiners have approached the government for a hike in customs duty on imports fearing that increased flow of refined oils will hurt domestic refining interests.
In a representation to the Minister of State for Food, the Solvent Extractors' Association has made three demands including that the Indian government hike the rate of customs duty on refined oils import, increase the tariff value on refined oils in line with market price and completely ban import of edible oil in consumer packs.
The association believes the three steps will not have any impact on edible oil prices in India since the refining capacities here are significantly higher than the total import of edible oils and competition among refiners will ensure they work on low margins.
Given the continued high rate of inflation, especially high food prices, it is not going to be easy for the government – especially the Ministry of Finance which decides on tariff matters – to hike customs duty on refined oils at this point of time. It would be a politically inexpedient move.
Notwithstanding the association's stated belief that its recommendations if acted upon will have no impact on domestic edible prices, what a hike in customs duty will do is push domestic prices higher and bring windfall profits for those holding large inventories.
But a more practical and logical way to address the issue would be revise upwards the tariff value on refined palmolein which for a long time has been retained at an artificially low level of $ 484 a tonne. The current rate of customs duty on refined palmolein is 7.5 per cent.
By retaining the tariff value artificially low, the government has lost huge revenue.
It is unclear whose interest the low tariff value has served.
There is strong case for revising the tariff value on refined palmolein upwards to reflect current market prices – $ 1,100-1,200 a tonne. Such a revision will ensure that rates of customs duty remain stable, but at the same time generate more revenue for the exchequer and provide some protection to domestic refiners.
Speaking to Business Line on the Indonesian move to cut customs duty, Mr Nadir Godrej, Managing Director, Godrej Industries, said it is sure to impact the Indian market. “Under the circumstances, I think, the least the government should do is immediately raise the tariff value on refined palmolein to reflect market prices,” he said adding such a move would offer some protection to the domestic players and at the same time generate additional revenue for the exchequer.