New Delhi: With newspapers splashing food prices across front pages, India may seek to tackle rising inflation in next week’s Budget by further cutting duties on edible oils and extending a window for duty-free wheat imports. Duty on metals could also be cut without hitting government revenues, analysts said.
In January, the government slashed import duties on edible oils, metals and cement to rein in prices, but with little success. Last week it cut retail prices of petrol and diesel.
Analysts said the government would have to take tougher measures on Wednesday’s Budget if it is to douse inflation, which has risen to two-year highs in recent weeks, as politicians from ruling and opposition parties scream for action. The government says the economy will grow by 9.2% this fiscal year. Inflation hit 6.73% in the 12 months to 3 February.
Traders and analysts said officials will take a harder look at both customs and excise duties on edible oils, among other items, to temper economic growth with affordability.
In January, the country cut import duties on crude palm oil and palmolein to 60%, and those on refined, bleached, and deodorized palm oil and palmolein were brought down to 67.5%.
India buys roughly half of its annual edible oil requirement of 10 million tonnes in the form of palm oils from Malaysia and Indonesia and soft oils from South America.
“The government may reduce duty on palm oil to the level of soy oil, which is at 45%,” said G. Chandrasekhar, commodities editor of the Hindu’s Businessline newspaper.
Chandrasekhar said with India being a leading importer of palm and soy oils, a new cut in duties would increase the flow of supplies and bring down prices.
“It is likely that the government will cut customs duty on edible oils and raise tariff values,” said Govindbhai Patel, a Gujarat-based edible oils trader. “I believe... the net effect of the cut on duties will be 5%-7%, not more.”
with high wheat prices, analysts said the government might permit private traders to import the grain beyond 28 February despite the harvest of the domestic crop from March. The base prices of the oils, used to calculate tariffs paid by importers, have not been changed for several months.
Duty-free imports have been allowed since August and India has also imported 5.5 million tonnes of wheat since early last year to try and temper prices and build buffer stocks after a poor harvest. The imports were the first in six years.
Finance minister P. Chidambaram had said on Thursday that the rise in the wholesale price inflation was likely to fall once a major supply constraint eases with the new wheat crop.