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Belated hike

AFTER SEVERAL WEEKS of vacillation and uncertainty leading to market distortion and free run for speculators, the Government has revised upward the rates of Customs duty on vegetable oil imports.

The manner in which it has been done leaves much to be desired; it betrays the extent of confused thinking among policy-makers who, it is clear, have not applied their mind adequately on the market conditions, but have gone by sectarian pressures. For on e, the rationale for the timing of the announcement is unclear, which raises a question: Who will benefit immediately from the latest round of duty revision? For obvious reasons, it cannot be the consumer who has had the benefit of low cooking oil prices for over a year now. Is it the oilseed grower? It cannot be because a large part of the kharif harvested oilseeds -- mainly groundnut and soyabean -- has already been marketed and farmers are unlikely to reap any major benefit from the current duty incr ease. Indeed, the duty revision ought to have happened at least 6-8 weeks ago, which would have sent strong price signals not only during kharif harvest but also for rabi cultivation. The Government vacillated then, on the specious plea of having to meet festival demand at reasonable prices; but succumbed now amid fears that the Opposition would draw political gains out of low agricultural prices, at the beginning of the winter session of Parliament. A higher duty on oil imports at this point of time wi ll have only a limited impact on rabi planting. On the other hand, over the last two months, taking a cue from the oft-repeated and largely unwarranted statements of the Union Ministers for Food and Agriculture about an imminent duty hike, a few dominant traders are believed to have built large inventory. They are the only ones who will reap windfall gains when domestic prices firm up. So much for the commitment of the Government to farmers and consumers.

The across-the-board increase in the basic Customs duty of various oils is sure to push the domestic vegetable oil market into a higher orbit. Last time, when duties were raised in June, the Malaysian market actually moved down and absorbed much of the i mpact. Now, its downside potential is limited. The one saving grace could be the possible price war between Malaysia and Indonesia to capture a share of the Indian crude palm oil market. But, potentially, there is danger in unrestricted import of crude p alm oil because the material can be easily palmed off to unwary consumers as vanaspati, especially during the winter months when the oil solidifies at ambient temperature. Crude palm oil has serious health implications for consumers, unless its usage is strictly monitored. For the Indian solvent extraction industry, the duty hike will bring a little, but only temporary, relief as margins on domestic oil sales will improve. But the industry, especially the non-soya segment, will continue to languish with falling oilmeal exports and burgeoning idle capacity.

Yes, the Government has once again gone about its task ritualistically. Neither the Minister for Agriculture nor the Minister for Food is talking about fundamental issues such as improving oilseeds productivity, building processing efficiencies, removing the skew in edible oil consumption, consolidation of fragmented capacities or building long-term global competitiveness. Unless the core issues are addressed and efforts to remove the inherent inefficiencies are honestly made, the country's oilseeds and vegetable oil sector will sink into a greater morass. The least the Government should do at this point of time is to earmark a part of the additional revenue accruing on vegetable oil imports for strengthening the programmes for raising oilseeds product ivity and production.