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To protect the sugar sector and edible oil refineries, the government is likely to raise the import duties on both raw sugar and refined oil.
The food ministry has recommended a rise in tariff on refined, bleached and deodorised (RBD) palmolein by 2.5 per cent from the existing 7.5 per cent to 10 per cent. Vegetable (veg) oil refineries had urged the government to raise it to 20 per cent on RBD palmolein and 10 per cent on crude palm oil (CPO). After a zero-duty regime for years, the government introduced a 2.5 per cent tariff on CPO early this year. That on refined oil was kept unchanged at 7.5 per cent.
This helped a major shift of import volumes from CPO to refined oil, as the processing margin was higher than the duty differential. Data compiled by the Solvent Extractors’ Association (SEA) showed the share of refined oil in import was 42 per cent in May as compared to 11 per cent in November 2012. This surge hit domestic edible oil refineries, whose operating capacity has dropped from the 55-60 per cent norm earlier to 30 per cent at present. As a corrective, the SEA asked for a rise in import duty on both crude and refined oil, to keep the differential at 10 per cent.
“The proposed duty hike is welcome but insufficient. The duty differential stood at 7.5 per cent till last year. With the levy of 2.5 per cent import duty on CPO on January 23, the differential narrowed to five per cent. This reduction led to large-scale import of refined palmolein, resulting in further underutilisation of capacity of the refining industry. The restoration of duty differential is in line with the recommendations of the Ashok Lahiri committee in 2006,” said Dinesh Shahra, managing director of Ruchi Soya Industries.
Adding: “The fluctuations in the rupee–dollar exchange rate has added to the problems faced by refiners. This is affecting our ability to make further investments.”
Of 16.5 million tonnes of annual edible oil consumption, imports are 55 per cent. With oilseed production not rising, imports could go up further.
Sugar
On sugar, K V Thomas, Union food minister, had said his ministry had proposed to the ministry of commerce a rise in import duty on raw sugar from the existing 10 per cent to 15 per cent. The industry wanted 30-40 per cent. The rise proposed by his ministry would protect the interest of the domestic sugar industry, which faces oversupply of three mt, said Thomas.
“Currently, port-based refineries are importing raw sugar at 16.41 cents per pound. After conversion & transportation charges, exchange rate and all other costs, the ex-factory price at 10 per cent import duty works out to Rs 3,100 a quintal. Considering an import duty at 15 per cent, the ex-factory price goes up to Rs 3,250 a qtl, which makes no practical difference. The duty should be much higher on raw sugar to protect the interest of domestic industry,” said an expert.
