The Solvent Extractors' Association has petitioned the Finance Ministry for an upward revision in tariff value (for calculation of customs duty) on the ground that the huge surge in import of refined palmolein was seriously affecting the domestic vegetable oil refining industry pushing it towards closure. However, the demand looks enervated when placed in context.

According to the association, in February refined palmolein imports surged to over 2.5 lakh tons from a monthly average of 1.1 lakh tons. Initial estimates suggest aggregate imports of vegoils last month were over 8.0 lakh tons (including 2.5 lakh tons of refined palmolein) as compared with 6.5 lakh tons each in the previous two months.

Ironically, vegoil inflows expanded last month despite repeated assertion by trade and industry executives of extremely sluggish off-take of various oils in the domestic market. If true, higher volume of import was not justified.

The reality is slightly different. There is reason to believe, increase in vegoil import last month, in the face of sluggish domestic demand, was speculative in nature.

Some trading houses have imported larger volumes in the fond hope of an increase in customs duty or tariff value in the forthcoming Budget that will potentially raise open market prices and bring windfall gains to importers holding large stocks. We have in the past seen this happen whenever potential for a duty or tariff hike existed.

So, far from being a monstrous surge that can push the refining industry to the verge of closure, imports have taken place based on commercial considerations. It is of course an entirely different matter that case for raising the tariff value on refined oils is quite strong although the government would not be able to muster courage to actually effect it because of its implication for a price rise.

Indeed, the bullish price forecasts for palm oil made at the recently concluded global conference in Kuala Lumpur would scare any government fighting food inflation and shortage.

While our imports are of the order of 85 lakh tons a year, port-based refining capacities alone (built in anticipation of continued and expanding imports) are said to be over 120 lakh tons. The petition suggested that there will closure of refining units and loss of jobs if low priced refined oils continued to flow. Unfortunately, these investment decisions were taken by the industry knowing fully well about the fickle nature of market prices as well as government policies.

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