Need to evaluate free edible oil import

It is frequently claimed that the Green Revolution enabled India to attain self-sufficiency in food. However, in edible oil the country suffered a serious setback in self-sufficiency, instead of improving it. During the early 1990s, imports constituted less than 5 per cent of the use of edible oil. This has gone up to 66 per cent in recent years. India has now become the largest importer of edible oil in the world, with annual imports exceeding 15 million tonnes valued at over Rs 650 billion. This compares with annual imports of around 110,00 tonnes during 1992-93. The surge in imports has led to a sharp rise in consumption of edible oil in the country, from less than 6 kg per capita till 1992-93 to 18 kg in recent years. No other agri-food commodity in the country has seen an increase of this magnitude. 

This raises several important questions. Is the increase in edible oil imports due to the failure of domestic production to keep pace with demand? Is it due to policies that favoured imports? Is the increase in per capita oil consumption due to cheaper imports desirable, or is it taking a toll on public health? What is the effect of imports on the domestic oilseed economy? Sadly, these aspects have not attracted the required attention in the country.

Historical data shows that India imported less than 100,000 tonnes of edible oil per year till the early 1970s. Stagnation in domestic production during the second half of the 1970s led to a surge in imports to 1.5 million tonnes by 1980-81 and a second surge to 2 million tonnes by 1987-88. This caused considerable concern in the country and it was decided by policy planners to tap the potential of domestic oilseed production, which could improve self-sufficiency and reduce imports. The government then launched the Technology Mission on Oilseeds (TMO) in 1986 to increase domestic production and reduce import dependence. The TMO involved supporting and promoting new production and processing technologies, and creating a remunerative price environment for oilseed producers. Imports were strictly regulated through a policy of canalisation. In a short period of six years following the launch of the TMO, the production of oilseeds in the country increased by 78 per cent, from 11.3 million tonnes to 20.1 million tonnes, and imports fell from close to 2 million tonnes in 1987-88 to a mere 0.1 million tonnes in 1992-93. The TMO, thus, met its main goal of self-sufficiency in edible oil. 

After 1992-93 came the era of liberalisation, followed by the World Trade Organization. Pro-liberalisation sentiment started prevailing over the focus on self-reliance. Some experts produced analysis that India had a comparative advantage in increasing production and export of cereal instead of oilseed, and it was more efficient to meet edible oil demand from imports. Convinced by such arguments, the government opened up the edible oil sector to imports again. Duty rates on import of palm oil were slashed from 65 per cent in 1994-95 to 25 per cent in 1996-97 and 15 per cent the next year, though WTO bindings were at 300 per cent. This liberalisation of imports stopped the progress of the TMO and subjected Indian oilseed production to compete with cheap palm oil from Malaysia and Indonesia. The level of increase (78 per cent) in oilseed production achieved in the first six years of the TMO could not be reached over the next 25 years after 1992-93. This marked the beginning of a sustained surge in imports of edible oil and decline of the country’s oilseed economy. These imports consisted largely of palm oil, a perennial plantation crop. Palm oil was neither part of Indian consumption nor production till 1970. Some studies questioned liberalisation of vegetable oil on the grounds of equity and welfare, as 72 per cent area under oilseed is in dryland and rain-fed regions. It was also argued that Indian farmers were not inefficient oilseed producers as they were able to compete in oilmeal exports, and there were other reasons for the low price of imported oil. But such arguments could not stand against the power of cheap imports.

The surge in imports has several implications that require a new look at the tariff policy for edible oil. First, the per capita intake of edible oil has increased three times in 22 years. Without imports, the per capita intake of edible oil in the country could stay at the level of the early 1990s, as is the case with cereal. Imports have tilted the composition of edible oil consumed by Indians away from traditional oilseeds, considered superior. The share of palm oil in domestic edible oil consumption has increased from 2 per cent to 50 per cent in the last 22 years. As a result, millions of Indian farmers cultivating oilseed on 26 million hectares are facing distress. However, despite the substantial adverse impact of imports on income from oilseed cultivation, the area under oilseed has not declined. The reason is that oilseed farmers do not have many alternatives, as over 70 per cent of the land under oilseed cultivation does not have access to irrigation. The presumption of trade experts that it is profitable to replace oilseed with cereal — wheat and paddy — has not worked in this situation.

There is a need to re-evaluate the policy of free import of edible oil, which has caused a serious damage to India’s large oilseed economy and, perhaps, also to consumer health. We should also look into blending of oils, which is misleading consumers about the type of oil they purchase and consume.

The recent decision of the government to raise tariffs on all types of vegetable oil, taken to protect domestic oilseed prices, could prove to be the first step towards revival of the country’s oilseed production. Beyond such a decision, we should re-initiate the TMO to harness the potential of oilseed in the larger interests of producers and consumers.

The writer is Member, NITI Aayog. 

Views expressed are personal