Further cut in edible oils import duty likely

The Government may cut import taxes on the edible oil for a second time in five weeks to boost supplies and curb inflation that's at a two-year high.

Finance Minister P Chidambaram may announce in his February 28 budget speech a cut in import duties or remove the additional 4 per cent levy, according to five out of six traders and importers surveyed by Bloomberg News. Taxes on palm and sunflower oils were reduced on January 24.

Rising prices of farm and manufactured goods have become a liability for the Congress party-led coalition as it prepares to face seven state elections this year. The government is stocking up wheat, sugar, pulses to augment supplies and keep inflation at below 4 per cent.

"The government is very, very worried about inflation,'' Govindlal G Patel, director of Dipak Enterprises, a cooking oils trader, said from Gujarat. "The cut may range between 5 to 10 per cent.''

Lower import taxes by India may bolster gains in palm oil prices in Malaysia and soybean oil in Chicago, analysts said. Palm and soybean oil futures have each risen almost 20 per cent in the past six months on increased demand for oilseeds to make into alternative fuels.

Palm oil on the Malaysia Derivatives Exchange advanced 0.5 per cent to 1,934 ringgit. The commodity averaged 1,559 ringgit ($445) a tonne last year.

Prices of refined bleached and deodorised palm oil have gained 17 percent in the past year on the National Commodity & Derivatives Exchange to Rs 440 per 10 kilograms. Refined sunflower and peanut oils have each gained 19 percent in the past six months on the Multi Commodity Exchange of India. The key inflation rate rose to a two-year high of 6.73 per cent in the week ended February 3.

"If inflation stays at 6.5 to 7 per cent and global prices continue to rise, the government will have little choice but to cut rates,'' Amol Tilak, an analyst at

Kotak Commodity Services in Mumbai, said.