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G. Chandrashekhar

The benefit of lower duty or lower tariff value seldom reaches consumers who continue to pay a high price for edible oil.

MUMBAI, May 30

STRANGE are the ways of our Government. It is known that the decision making process in New Delhi is inscrutable; but there are occasions when the policy makers seem to be unable to convincingly justify their decision even when questioned in Parliament.

Some of the answers are deft at being evasive and confirm the superficial manner in which seemingly inconvenient questions are treated. While all stakeholders— farmers, processors, traders and consumers — in the vegetable oil supply chain are engaged in expanding the market size and maximising returns, the Government continues to make the usual noises about protecting domestic interests, especially of growers and consumers. But there is growing impression that policy-makers sitting in various Ministries in New Delhi — Food, Finance and Agriculture — have only a limited idea of the dynamics of the vegetable oil market.

The last session of Parliament threw up some questions about the edible oil sector. Answers to the questions show that the concerned Ministries either did not do their homework or do not understand the needs and imperatives of this volatile market.

One of the outrageous instances is provided by the answer to an unstarred question 4059 in Rajya Sabha on April 29. To a question whether domestic producers derived adequate benefit because of increase in customs duty on edible oil imports during last three years, the Finance Ministry's reply through the (then) Minister of State for Finance was, "It is not possible to comment on the extent to which the domestic producers could get benefit because of the changes in customs duty''.

It is unclear from this answer if the Government is unable or unwilling to defend its fiscal decisions relating to edible oil imports. The Finance Ministry's fuzzy thinking on the subject became all the more evident when in the subsequent part of the answer, the Minister stated, "Customs duty structure on edible oil is decided taking into consideration various factors including the need of domestic manufacturers and oilseed growers''. Despite admitting that domestic interests are taken into account, the Ministry has been in no position to assess the effect of its own action.

Even while professing to decide fiscal levies after taking into account the need of domestic manufacturers, the Government is unwilling to articulate or confirm the impact of its own decision.

This raises serious questions not only about the credibility of the answers provided, but also about the credibility of policy makers themselves and the seriousness with which they approach fiscal matters. This is not all.

On the same day, April 29, the Minister asserted that "the customs duty structure on edible oil was examined in the Budget 2003-04 and it was decided not to make any change in this regard''.

Curiously, the very next day, that is on April 30, the Union Finance Minister, Mr Jaswant Singh, while replying to the debate on Finance Bill 2003 sharply reduced the customs duty on refined palmolein and refined palm oil from 92.4 per cent to 70 per cent by lowering the basic duty by 15 percentage points and exempting the oils from special additional duty of 4 per cent.

What prompted the Finance Ministry to change its mind in less than 24 hours and effect drastic changes in customs duty on palm oil is a question that remains to be answered. Surely, market conditions did not change so dramatically in a single day to warrant duty reduction. If anything, by the end of April, the Malaysian palm oil market was in the process of collapsing with a massive stock overhang, and India as the largest importer could have benefited from falling international prices.

However, the Government saved the Malaysian industry by unilaterally effecting a reduction in customs duty that no one here had demanded, neither domestic oilseed growers nor edible oil producers or consumers. So, what considerations lay before the Finance Minister?

As if to encourage overseas markets further and to the detriment of domestic producers, in about a fortnight after duty reduction, the Finance Ministry on May 14 revised down the tariff value for all edible oils.

The revised tariff values, unfortunately, bear no relationship with actual market conditions. It came as a bonanza to importers who had contracted for large parcels, but had sold the material in advance in the local market. At the time of revision, indeed, the new tariff values were actually less than the market value of various oils, resulting loss of revenue.

Obviously, utter lack of transparency in fixing tariff values is playing havoc with the market. The benefit of lower duty or lower tariff value seldom reaches consumers who continue to pay a high price for edible oil, the quality of which is itself suspect. However, the Government appears to be unconcerned about consumers.

Imposition of tariff value has surely helped check invoice manipulation and resultant revenue loss. However, now, the cavalier manner in which tariff values are changed seems to be resulting in loss of revenue as the tariff values fail to reflect the correct value of the goods. It is far from clear who benefits from such decisions.

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