Business Standard

Duty cut not to affect prices of edible oil

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Dilip Kumar Jha Mumbai
The customs duty cut on edible oil is unlikely to have any long-term impact on prices, as it would not change any demand-supply dynamics in the domestic market, on which prices are basically determined.
 
Market watchers, however, are optimistic about small, short-term ripple effect. "Market works on sentiment and the duty cut would surely work on the sentiment, however little, to give a break to the rising prices," a trader said.
 
Edible oils market witnessed a mixed trend on Thursday, as prices of refined palmolein slumped by Rs 10 to Rs 445-447 per 10 kg, while all other oil varieties remained unchanged. Prices of groundnut oil per 10 kg remained stagnant at Rs 610-620, refined soya oil at Rs 447, refined sunflower oil at Rs 570, refined mustard oil at Rs 453 and refined cottonseed oil at Rs 445-447.
 
As part of its strategy to keep inflation under check, the government had cut customs duty on edible oils up to 12.5 per cent on Wednesday. With the current import duty reduction, crude palm oil, crude palmolein and other crude edible oils would possibly be imported at 60 per cent from 70 per cent duty earlier, while the import duty on refined bleached deodorised (RBD) palm oil, RBD palmolein and other refined palm oils at a duty of 67.5 per cent from 80 per cent.
 
Crude sunflower oil will now entail an import duty of 65 per cent from 75 per cent earlier, while refined sunflower oil will attract a customs duty of 75 per cent from 85 per cent earlier.
 
B V Mehta, executive director of the Solvent Extractors' Association, believes the reduction in customs duty will reduce the landed cost of these oils by $50, which would percolate to retail customers with a lower price by Rs 2 a kg. "The price decline, however, would not sustain for long due to many bio-diesel programmes of the domestic as well as international producers.
 
Indications are that the crude oil prices would appreciate with the all-out efforts by oil-producing countries and growing demand from consuming countries," another trader said.
 
An analyst said that instead of the duty cut the government should focus on increasing the yield by introducing genetically modified (GM) seeds and provide better irrigation system and nutritious fertilisers. The vision of the government should be of a long term and not short, which can be controlled by any artificial means, he added.
 
The country imports around 42 per cent of its annual edible oils demand, which is currently pegged at 12 million tonne. The demand is expected to shoot up to 15.6 million tonne by 2010.
 
Although the country has an acreage of 26 million hectare under oilseeds cultivation, with a low yield of only 0.97 tonne a hectare, it will continue to be dependent on imports to the extent of 40 per cent of its annual consumption, analysts said.

 
 

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First Published: Jan 26 2007 | 12:00 AM IST

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