 "Import duty cut to help moderate commodity prices")
The import duty cut on wheat, edible oil and potato is likely to hit domestic processing industry hard due to expectations of a sharp increase in their arrivals from overseas markets.
Indian edible oil industry had urged the government to maintain duty differential of 15 per cent on crude and refined oil to protect the interest of domestic refineries. This could have been possible either through cut in import duty on refined, bleached and diodized (RBD or refined oil) or increase in crude palm oil (CPO) which the industry had recommended to the government.
But ignoring the demand of the industry, the government cut import duty on CPO by five per cent to 7.5 per cent and on refined oil to 10 per cent from 20 per cent earlier, thus narrowing down the duty differential to a mere 2.5 per cent. The domestic edible oil refinery sector is anyway suffering due to a sharp increase in import of refined oil over the last few months thus reducing the capacity utilisation of domestic refineries to 30-40 per cent now from 55-60 per cent around the same time last year.
“It was not the most opportune time for a cut in import duty in edible oil. If the government was so worried about inflation it could have reduced import duty on CPO without touching refined oil. This could have taken duty differential at 15 per cent and allowed domestic refineries to function. The cut in import duty will result into a price decline in India, but moreso it would badly impact farmers’ realisation on soybean which is going to be marketed shortly. So, farmers may not get better realisation for soybean,” said Atul Chaturvedi, president, The Solvent Extractors’ Association of India (SEA), the premier industry body representing over 850 members of the trade.
With import surpassing all its previous record with estimated quantity of 15.5 million tonnes during oil year 2015-16 (ending October 2016), India meets its 55-60 per cent of the country’s edible oil requirement through imports largely from Malaysia, Indonesia and Argentina.
D Manikchand, Managing Director of Panchganga Roller Flour Mills, a Kolhapur-based flour mill said that the reduction in import duty on wheat would benefit flour millers in the south as they would prefer import over procurement from the northern Indian states.
“With 25 per cent import duty, the landed cost of imported wheat stands at around Rs 2,100 a quintal as against the prevailing price of Rs 1,900 a quintal in the southern Indian states and Rs 1,650 a quintal in the northern province of the country. A cut in import duty by 15 per cent will make imported goods cheaper than the price working out for procurement from within the country. Hence, import will increase. We expect at least 1 million tonnes import of wheat largely from Australia this financial year,” Manikchand added.
The government on Friday cut import duty on wheat to 10 per cent from the existing 25 per cent despite India’s estimates harvest at 93.50 million tonnes (mt) in 2015-16, which is 7 mt more than the previous year's. Trade sources said if the Centre had not lowered the import duty, there could have been acute shortage of wheat flour during the coming festival season as flour mills were left with little stock.
The government also cut import duty on potato looking at its price rose sharply in the last few weeks. Concerned over rising retail prices amid a production shortfall, the government reduced the import duty on potatoes to improve domestic availability. According to official data, potato output has declined nine per cent to 43.7 mt in the 2015-16 crop year (July-June) compared with 48 mt last year. The government cut import duty on potatoes from 30 per cent to 10 per cent.
“Prevailing price in Egypt and Pakistan is so low that the government must have decided to cut import to bring in more potatoes at cheaper price,” said a city-based potato dealer.
