In a presentation made to the working group appointed by the government to review the problems of the vegetable oil sector, JK Khaitan, president, IVPA, pointed out that the vanaspati industry has been struggling to ward off sickness caused due to overcapacity, varying sales tax rates, erosion of markets through export of vanaspati from Nepal and competition from cheaper imported oils.

Khaitan said that the capacity utilisation in the industry was only 33 per cent. This was due to indiscriminate expansion in capacity from 14.97 lakh tonnes in 1987-88 to 30.62 lakh tonnes in 1997-98. Even as the capacity increased by nearly 100 per cent, the demand had remained stagnantat around 10 lakh tonnes. This has led to the closure of 84 of the 189 installed units.

Besides putting vanaspati in the negative list, directives should also be issued to financial institutions not to finance any new units, said Khaitan.

The vanaspati industry had also been suffering due to a wide disparity in sales tax rates, Khaitan said. This resulted in inter-state smuggling and evasion of tax besides creating distortions in the market supply and demand equilibrium. IVPA has sought the Centre to recommend a uniform tax rate on vanaspati in all the states.

The association has also asked the government to permit unfettered use of all oils in the manufacture of vanaspati without imposing any limit on its percentage consumption.

The use of expeller mustard oil has been permitted up to only 20 per cent. Khaitan said that such limits should be removed and market forces of demand and supply should be given a free rein.

Other suggestions made by the association include the rationalisation of customsduty structure on import of oils. According to vanaspati producers, certain traders simply pack the soft/refined imported oils like soyabean, cottonseed, sunflower and rapeseed and pitch them against indigenous oils and vanaspati at drastically low prices. IVPA has suggested that the customs duty on import of such oils be raised from 16.5 per cent to 25 per cent.

Although there is no central excise duty on vanaspati, its by-products like oxygen, spent nickel catalyst, soap stock and acid oil attract excise. IVPA wants that excise on by-products should be abolished for the smooth running of the vanaspati industry and to free it from the inspector raj.

Khaitan said that though the industry was passing through a critical phase, it had to take concrete steps to organise a technology plan and to ensure the phased implementation of the plan for upgradation of technology with the government's help. Vanaspati producers should also explore the possibility of introducing additional downstream products for consumersatisfaction and to give a fillip to the image of the product, Khaitan added.