Imports, smuggling hit local vanaspati firms

Rampant smuggling of vanaspati from Nepal, in addition to the permitted quantity of duty-free imports under the bilateral free trade agreement between the two countries, is crippling the domestic vanaspati industry.

According to the Vanaspati Producers' Association of India (IVPA), at least 1.5 lakh tonnes of vanaspati is smuggled into the country. This is one-and-half-times the duty-free import quota of 1 lakh tonnes under the Indo-Nepal free trade treaty. As a result, many vanaspati units, especially in the eastern region, have closed down or are on the verge of closing down.

In any case, the vanaspati industry is currently operating only on 20 per cent capacity utilisation because of its inability to compete with imported vanaspati from neighbouring countries under free trade pacts. Coupled with this, the industry is also hit by an inverted duty structure on vanaspati and imported crude palm oil, the main raw material for vanaspati production, created as a result of these trade agreements, notably with Nepal and Sri Lanka. This denies the domestic sector a level playing field vis-à-vis imported product.

The IVPA has brought these aspects to the notice of the government through a memoranda submitted to the ministries of finance, commerce, food and public distribution and other concerned departments and industrial chambers.

It points out that while the domestic industry has to pay an import duty 46.35 per cent on crude palm oil, its key raw material for vanaspati manufacture, the import of the finished product from neighbouring countries carries no duty.

"This results into a higher cost of Rs 832 for 15 kg tin of indigenous vanaspati as compared to the cost of Rs 730 in respect of vanaspati imported from Sri Lanka and other neighbouring countries," the memorandum points out.

The non-level playing field is evident also from the fact that in Sri Lanka, the duty levied on vanaspati is only $25 a tonne (approximately Rs 1000 a tonne) while in India, it is as high as Rs 8500 a tonne. The IVPA has suggested to the government to impose a flat customs duty of Rs 4000 a tonne on the crude palm oil, instead of the present 46.35 per cent ad voleram duty, for the imports meant exclusively for vanaspati manufacture.

Alternatively, the inverted duty structure can be rectified by permitting the domestic vanaspati industry to import crude palm oil at a concessional duty of 20 per cent on actual user basis, the memorandum has said.

The IVPA has also urged the government to take effective steps to prevent smuggling of vanaspati form Nepal which is causing revenue loss to the government.

Some mechanism should be evolved in consultation with the Nepal government to monitor flow of vanaspati to India from the factories in that country, the industry body has suggested.