Under the government’s plan to double farmers’ income, achieving self-sufficiency in oilseeds production by 2030 is a major target (Bloomberg file)
Under the government’s plan to double farmers’ income, achieving self-sufficiency in oilseeds production by 2030 is a major target (Bloomberg file)

How India plans to reduce its edible oil import dependency

  • The government has decided to raise customs duty on the import of refined palm oil from Malaysia to 50% from 45% for six months
  • Imports of refined palm oil from Malaysia increased from 626,362 MT in 2016-17 to 2,596,225 million tonnes in January-June 2019

New Delhi: On Wednesday, the government decided to raise customs duty on the import of refined palm oil from Malaysia to 50% from 45% for a period of six months, after an investigation by the Directorate General of Trade Remedies (DGTR) found increased imports of the edible oil have caused serious injury to domestic producers.

Oilseeds are the Achilles heel of the country’s food production system and India imports most of its edible oils from Indonesia and Malaysia. However, since Malaysia has a duty advantage over Indonesia under the India-Malaysia Free Trade Agreement, the import of palm oil has significantly jumped in recent months.

Imports of refined palm oil from Malaysia increased from 626,362 million tonnes (MT) in 2016-17 to 2,596,225 million tonnes in January-June 2019 (annualized), thereby showing an increase of 314%. Imports of refined palm oil from Malaysia constituted 15% and 9%, respectively, of the production and consumption in India in 2016-17. The share of Malaysia, however, surged to 54% and 32%, respectively, during the January-June 2019 period.

“The industry is suffering from gross underutilization of production capacities. To compound the difficulties of domestic producers, the sudden surge in imports is further impacting the capacity utilization of domestic producers in India," the DGTR investigation found.

Under the government’s plan to double farmers’ income, achieving self-sufficiency in oilseeds production by 2030 is a major target.

“The strategy for self-sufficiency should encompass all three sources of oils — seven edible (soybean, rapeseed-mustard, groundnut, sesame, sunflower, safflower and niger) and two non-edible (castor and linseed) oilseed crops, all of nine (9) constituting the primary sources; secondary sources (rice bran, cotton seed, solvent extracted oils); and tree borne oils (TBOs), namely, palm oil, coconut, other tree and forest origins," according to the report of the committee on doubling farmers’ income.

The Department of Agriculture has set a target of first increasing oilseed production from primary sources from the current 31 million tonnes to 45 million tonnes by 2022-23. This is expected to help in increasing the edible oil production in the country from the current 7.1 million tonnes to a range of 11-14 million tonnes. Contribution from secondary sources and TBOs are likely to add another 3 million tonnes, restricting the import dependency to about 16 million tonnes, which otherwise will be much higher by 2022-23.

To incentivize palm tree cultivation, the committee has suggested a price incentive mechanism for farmers through creation of an Edible Oil Development Fund (EODF), with contributions coming from a specially levied cess of 0.5% on the imports of crude and refined palm oil.

The committee observed that despite huge domestic supply deficit, farmers have not been enjoying high market prices. The capacity utilisation of the domestic oil industry is 35-50% because of low availability of raw material and eased import of refined oil.

“It is suggested, that while import duty on both categories is raised to protect the local production, simultaneously, the import duty differential between crude & refined oil be maintenance at a minimum of 20% (from 10% at present). A fine balance is needed in meeting domestic demand through imports and ensuring a favourable price in the domestic markets," the committee recommended.

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