NEW DELHI : The government is considering a reduction in the tax imposed on edible oil imports to mitigate the price spike following Indonesia’s recent ban on shipments of crude palm oil, which accounts for almost half of India’s imports from this product.
The Ministry of Consumer Affairs, Food and Utilities is likely to propose a reduction in the 5% Agricultural Infrastructure Development (AIDC) tax as India explores alternative channels for supplying coconut oil. palm, according to a government official. A final call will be taken by the Revenue Department of the Ministry of Finance.
India is also likely to engage with Indonesia, the world’s largest palm oil exporter, through diplomatic channels and hold bilateral talks over the sudden export ban that has sparked inflationary fears. globally, knowledgeable people added.
“We have alternative cooking oils available. But the real concern is the prices. For this we can cut the duty. The agricultural tax can be reduced in order to stabilize the prices of edible oils. However, the ban by Indonesia is very likely to be reversed in a few weeks,” the government official told Mint.
India is the biggest importer of palm oil from Indonesia. It imports about nine million tonnes of palm oil annually and this product accounts for more than 40% of India’s overall edible oil consumption basket. Experts have said 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 the tax may not really help to cool edible oil prices, as prices have risen very sharply. “There is now only a very small tax of 5% on imports of edible oils. We doubt removing this will have a meaningful impact on pricing,” he said.
Another official said that if there is a shortage, 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 the tax will go some way to reducing consumer prices. However, we still need to address palm oil shortages which will create additional demand for other oils. Therefore, the price may not drop more than ₹2-3 per liter as prices rose by at least ₹60-100 per liter in 2020.”
Palm oil prices could hammer households as cooking oil prices have already hit record highs after war in Ukraine halted shipments of sunflower oil earlier this year. “A reduction in agri cess can help to partially alleviate inflationary pressures exacerbated by global factors. However, other issues may remain such as higher vegetable prices following higher temperatures and revised diesel prices,” said Aditi Nayar, Chief Economist, ICRA Ltd.
The Union government had in February cut the price of crude palm oil (CPO) from 7.5% to 5% to help control cooking oil prices and support oil companies. national transformation. The basic customs duty on crude palm oil is zero.
Inquiries sent to the Department of Trade and Industry and the Department of Agriculture and Farmers’ Welfare on Friday and the Department of Finance on Sunday remained answered at press time.
Indonesia’s Coordinating Minister for Economic Affairs Airlangga Hartarto said last week that an edible oil export ban from April 28 would be extended to crude palm oil, RBD palm 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 products, the ban could also eat into the margins of Indian consumer packaged goods players.