Palm oil duty cut may not reduce domestic prices
Premium- The reduction will bring down the effective tax rate on crude palm oil to 30.25% from the earlier 35.75%
New Delhi: The reduction in import duty on crude and refined palm oil till 30 September, a move aimed at cutting soaring edible oil prices in the domestic market, is expected to have a limited effect on prices, companies said.
On Tuesday, the government announced several measures to arrest high prices of edible oils, including cutting basic import duty on crude palm oil to 10% from 15% and refined palm oils to 37.5% from 45%. The reduction will bring down the effective tax rate on crude palm oil to 30.25% from 35.75%. This reduction, in turn, will bring down the retail prices of edible oils, the government said.
Additionally, the food and public distribution department on 30 June recommended removing refined, bleached and deodorized palm oil and RBD palmolein from the restricted list to the free-to-import category till 31 December.
Food inflation, including high prices of edible oils, has been a cause of concern for the government and the central bank.
Adani Wilmar, which sells edible oil under the Fortune brand, said the duty cut won’t help much in reducing prices.
“Suppliers can increase their prices, so you don’t get the full benefit of the duty cut," said Angshu Mallick, deputy chief executive of Adani Wilmar. “If the objective of duty cut was to arrest inflation as the edible oil prices were going up, the consumer will not get relief because of this."
Besides, the duty has been cut on palm oil and not soya bean or sunflower oil, which middle-class Indians widely use. Palm oil is used mostly by institutions, hotels and commercial establishments, he said.
Nearly 60% of the edible oil consumption in the country is met through imports.
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Import of palm oil—both crude and refined—constitute roughly 60% of the total edible oil imported by India, out of which 54% is imported from Indonesia and Malaysia.
Prices of palm and soy oil have more than doubled in the last year, S&P Global Platts said in a recent note.
Palm oil is widely used in a range of daily items such as soaps, cosmetics and packaged foods such as biscuits, chips and chocolates.
Pankaj Agarwal, chief operating officer of snacks maker Bikano, said the duty cuts offer a slight boost to the food industry.
However, despite these duty cuts, commodity prices remain very high. “As such, these cuts are still not a relief with high prices still putting us under pressure in these difficult times—but could help companies cut on cash losses," he added.
“In view of edible oil being an integral ingredient in nearly all food preparations, the reduced import duty on palm oil would naturally spill over onto edible oil prices, bringing down the market prices of the latter in the market. However, with the prevalence of high commodity pricing, the industry has been bleeding for some time now. Despite these duty cuts, prices remain high from a business standpoint," he said.
Adani’s Mallick added that unrestricted imports of refined palmolein are set to open the “floodgates" for finished products into the country and hurt domestic manufacturers.
Shuchi Bansal contributed to this story.
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