As retail inflation in edible “oils and fats” surged to second-highest level in 2021 in September, the government on Wednesday cut agriculture cess on imported oils to 5% and 7.5% on various items from 20% earlier while also removing 2.5% basic import duty.
However, the duty reduction may not result in any big relief to consumers despite the government likely to lose about Rs 34,000 crore in revenues, analysts said, pointing to Wednesday’s increase in palm oil prices in Malaysia.
“Consumers may not get full benefit of the duty reduction. In fact, after the duty cut was announced by India, the Malaysian market has gone up by about RM 150-170 per tonne,” said BV Mehta, executive director of Solvent Extractors Association of India.
Wednesday’s announcement will translate into a reduction in effective import duty on crude and refined varieties of palm oil, soyabean oil and sunflower oil between 16.5 and 19.25 percentage points. The cut will be effective from October 14. The consumer price inflation (CPI) in oils and fats surged 34.19% in September, slightly below June’s 34.78%. The government has realised that the situation may not ease before arrival of next rabi oilseed crops as there is likely to be a fall in production of two major kharif oilseeds — soyabean and cotton.
“There has been a demand for edible oils, globally as many countries are believed to be shifting to bio diesel. Besides, prices of other commodities are also bullish this year from last year,” said RK Patel, an edible oil expert trading in groundnut oil.
“The immediate trigger for this drastic duty reduction is largely on account of high price edible oil and onset of festive season and high food inflation. However, the timing of reduction of import duty is a cause of concern as farmers are now harvesting kharif soya and groundnut crops. This reduction in import duty may affect the farmers’ realisation for their oilseeds,” Mehta said.
However, Abhishek Jain, Tax Partner, EY, said: “Given the surging edible oil prices, the government has reduced the basic customs duty rates on crude as well as edible grade oils. The decision would be highly appreciated by the industry and would also help in reducing price burden on ultimate consumers.”