Finmin mulls cut in import duty on edible oil to offset impact of poor monsoon

Written by Himani Kaushik | Sandip Das | New Delhi | Updated: Aug 15 2012, 06:11am hrs
To soften the blow of scanty rainfall on food inflation, the finance ministry is working on a plan to reduce import duty on refined edible oils. The ministry may also look at a reduction in import duty on skimmed milk, which is 5% at present. It is likely to continue with the zero-import duty regime for pulses.

These measures are part of the plan to ensure that food prices dont surge too much.

We are deliberating on measures, including a reduction in import duties on pulses and edible oils and/or provide subsidy to state trading companies like PEC, STC and MMTC, a senior government official, requesting not to be named, told FE.

After edible oil prices skyrocketed because of the rise in global prices in 2008, the government had reduced crude oil duty to zero while refined oil attracts a duty of 7.5%. Retail prices of refined soyabean oil have risen to R85-90 a litre from R65 in 2009. Even mustard oil prices have moved up to R105 a kg from R85 a year back.

Learning from its experience 2009-10, when poor monsoon resulted in food inflation shooting up to 20.6% and headline inflation peeking to 10.4% in March 2010, the government appears determined to limit the impact of a drought-like situation.

India's wholesale inflation unexpectedly fell in July to 6.87% as per the data released on Tuesday, its lowest level since January 2010. Food commodities are given a 14.5% weightage in the inflation index.

In the current year, India is likely to import 7.6 million tonne of palm oil, 1.1 mt of soybean oil, 1 mt of sunflower oil and 10,000 tonne of other edible oils, mainly from Indonesia and Malaysia. The country meets more than half of its edible oil consumption through imports. It imported about 2.8 mt of pulses, mainly tur and urad, from countries like Mynamar, Kenya, Tanzania and Mozambique, in the last fiscal. The domestic demand is estimated at close to 19 mt.

India produced record 257.44 mt of grain (rice, wheat, coarse cereals and pulses) in the 2011-12 crop year (July-June), but the production is likely to fall in 2012-13 due to poor monsoon.

The government is working on plans to avoid a scenario similar to 2009, when due to a severe drought, Indias grain output came down to 218 mt from 234 mt in the previous year.

These proposals are part of an action plan prepared by the finance ministry to implement measures announced by finance minister P Chidambaram at a press statement recently.

The food ministry is anticipating prices of essential commodities to rise in the coming weeks as agricultural produce is likely to be affected. The prevailing drought conditions could affect the crop prospects and may have its impact on the prices of essential commodities, such as shortfall in domestic supplies relative to demand, food minister K V Thomas recently told Parliament in a written reply.

Retail prices of sugar, edible oil, sugar and tomato have already risen in the last three months.