July 7, 2021
To cut rising edible oil prices in the domestic market, govt reduces import duty on crude and refined palm oil till 30 September, but this is expected to have a limited effect on prices.
The government publicized several methods to arrest high prices of edible oils, including cutting basic import duty on crude palm oil to 10% from 15% and refined palm oils to 37.5% from 45%. The reduction will bring down the effective tax rate on crude palm oil to 30.25% from 35.75%. This reduction, in turn, will bring down the retail prices of edible oils. Moreover, the food and public distribution department on 30 June suggested eliminating refined, bleached, and deodorized palm oil and RBD palmolien from the restricted list to the free-to-import category till 31 December.
Basically, this duty cut won’t help much in reducing prices, as suppliers can increase their prices, so you don’t get the full benefit of the duty cut. If the objective of duty cut was to arrest inflation as the edible oil prices were going up, the consumer will not get relief because of this.
Besides, the duty has been cut on palm oil and not soya bean or sunflower oil, which middle-class Indians widely use. Palm oil is used mostly by institutions, hotels, and commercial establishments. Nearly 60% of the edible oil consumption in the country is met through imports. Import of palm oil—both crude and refined—constitute roughly 60% of the total edible oil imported by India, out of which 54% is imported from Indonesia and Malaysia. Prices of palm and soy oil have more than doubled in the last year.
However, despite these duty cuts, commodity prices remain very high. As such, these cuts are still not a relief with high prices still putting us under pressure in these difficult times—but could help companies cut on cash losses.
With edible oil being an essential ingredient in nearly all food preparations, the reduced import duty on palm oil would naturally spill over onto edible oil prices, bringing down the market prices of the latter in the market. However, with the prevalence of high commodity pricing, the industry has been bleeding for some time now. Despite these duty cuts, prices remain high from a business standpoint.