Vanaspati industry battles for survival

The vanaspati industry is suffering heavy losses due to an irrational import duty structure, unreasonable tariff value, increased competition from cheaper imported hydrogenated fats and unchecked adulteration with non-edible grade oils, notably imported stearin.

The stipulation of impractical limit of beta carotene content for qualifying as crude palm oil (CPO) alone is expected to cause a loss of Rs 320 crore to the industry this year.

The loss on this count last year was Rs 160 crore. The industry had to pay an extra import duty of about Rs 2,460 for every tonne of imported CPO, the main raw material.

As a result, about 80 vanaspati units have already closed down and more are said to be on the verge of closure. The capacity utilisation in the industry as a whole is estimated to be merely 26 per cent.

The Indian Vanaspati Producers' Association (IVPA) president, JK Khaitan, has brought the problems of the industry to the notice of the ministers of finance, food and agriculture, and commerce and industry. In a detailed communication to them, Khaitan has stated that the industry was disillusioned with the 2004-05 Budget proposals.

He has pointed out that though the Budget sought to retain the customs duty on the CPO at 65 per cent, the effective rate was far higher.

This was because it was impossible to source CPO in the international market having beta carotene content of between 500 and 2,500 mg per kg as required for this rate of duty. The stocks actually imported normally had a higher content and were charged import duty of 70 per cent or above.

Besides, the tariff value of $523 per tonne, fixed way back in November last, was far higher than the current prevailing international price of $432 a tonne. This resulted in a needless extra duty payment of about Rs 3,200 a tonne on the CPO.

Khaitan had also pointed out the anomaly in the fixation of import duty on CPO and the manufactured products made from it. While the duty on CPO was as high as 65 per cent, it was less than half, 30 per cent, on vanaspati (the finished product). This had led to a spurt in the import of vanaspati from countries like Malaysia and Indonesia.

The import of vanaspati from Sri Lanka and Bangladesh was also on the rise because of the concessional duty rates under the bilateral trade agreements.

The IVPA had suggested that vanaspati should be placed on the negative list of imports under these treaties. The Associated Chambers of Commerce and Industry has supported this plea.

Khaitan informed the ministers about the rampant admixing of stearin in vanaspati by unscrupulous elements, taking advantage of the recent reduction in import duty on non-edible grade oils from 30 per cent to 20 per cent.

He suggested that the import of such non-edible oils should be allowed only to registered soap manufacturers to safeguard the consumers from the ill-effects of this malpractice.