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NEW DELHI : The government is mulling a reduction in the cess charged on edible oil imports to soften a spike in prices following the recent Indonesian ban on shipments of crude palm oil, which account for nearly half of India’s imports of the commodity.

 The ministry of consumer affairs, food and public distribution is likely to propose a cut in the 5% Agriculture Infrastructure Development Cess (AIDC) as India explores alternative channels for palm oil supplies, according to a government official. A final call will be taken by the department of revenue in the ministry of finance.

India is also likely to engage with Indonesia, the world’s largest exporter of palm oil, through diplomatic channels and also hold bilateral talks over the sudden export ban that has sparked inflationary fears globally, people in the know further said.

 “We have alternative cooking oils available. But the real concern is around prices. For that, we can cut duty. Agriculture cess can be slashed in order to stabilize edible oil prices. However, the ban by Indonesia is most likely to be reversed in a matter of weeks," the government official told Mint.

India is the largest importer of palm oil from Indonesia. It imports about nine million tonnes of palm oil annually and the commodity accounts for over 40% share of India’s overall edible oil consumption basket. Experts said that edible oil prices could soar to almost double if an alternative source is not found.

A finance ministry official told Mint that a reduction in cess may not really help cool edible oil prices, as the prices have risen very sharply. “There is now only a very small cess of 5% on edible oil imports. We doubt doing away with that will have any significant impact on the prices," he said.

Another official said that in the event of scarcity, the government could also launch a consumer awareness campaign asking people to consume less palm oil and switch to alternative oils for the time being.

Madan Sabanvis, chief economist, Bank of Baroda said, “A reduction in cess will help to an extent to reduce consumer prices. However, we still have to counter shortages in palm oil which will create extra demand for other oils. Hence, the price may come down by not more than 2-3 per litre while prices have increased by at least 60-100 per litre over 2020."

Palm oil prices could hammer households as cooking oil prices are already at record levels after the Ukraine war disrupted shipments of sunflower oil earlier this year. “A reduction in the agri cess can help to partly douse the inflationary pressures being inflamed by global factors. However, other pain points may remain, such as higher vegetable prices following the hotter temperatures and revised diesel prices," said Aditi Nayar, chief economist, ICRA Ltd.

The Union government had in February reduced agri-cess for crude palm oil (CPO) from 7.5% to 5% in order to help control cooking oil prices and support domestic processing companies. The basic customs duty on crude palm oil is nil.

Queries sent to the commerce and industry ministry and ministry of agriculture & farmers’ welfare on Friday and ministry of finance on Sunday remained answered till press time.

Indonesia’s coordinating minister for economic affairs Airlangga Hartarto said last week an export ban on edible oil from 28 April will be expanded to crude palm oil, RBD palm oil and used cooking oil.

The palm oil ban could have ramifications beyond the price of cooking oil. Since palm oil and its derivatives are used in the production of several household goods, the ban could eat into the margins of Indian packaged consumer goods players too.

ravi.dutt@livemint.com

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