Customs Duty on Edible Oil

In order to reduce edible oil inflation, the Indian government recently approved duty-free imports of 20 lakh metric tonnes of crude soyabean oil and crude sunflower oil for this year and 2023-24.

Why?

Retail inflation in edible oils and fats was 18.8% in March and 17.3% in April, with imports of sunflower oil restricted due to the ongoing Russia-Ukraine conflict.

Status of edible oil in India –

Consumption pattern –

• Oilseeds and edible oils are two of the most sensitive essential commodities. India is one of the world’s largest producers of oilseeds and this sector is critical to the agricultural economy.
• According to the latest available data, each Indian consumed 19.5 kg of edible oil every year on an average during 2015-16 (15.8 kg in 2012-13). This amounts to an aggregate demand of around 26 million tons of edible oils per year.

Demand-supply mismatch –

• India cultivated oilseeds on 25 million hectares of land, producing 32 million tons of oilseeds in 2018-19, with soybean, rapeseed and mustard and groundnut accounting for almost 90% share in the area.
• Assuming a country-wide average of 28% oil recovery, 32 million tons of oilseeds will yield around 8.4 million tons of edible oil.
• This means, domestic production can only meet a little over 30% of the total demand for edible oils, necessitating its import.

Imports –

• In 2019, India imported around 15 million tons of edible oils worth approximately Rs 7,300 crore, which accounted for 40% of the agricultural imports bill and 3% of the overall import bill of the country.
• Palm oil accounted for the lion’s share of the total imports (62%), followed by soya oil and sunflower oil (21% and 16%, respectively). There is a considerable increase in the share of soya oil and sunflower oil in the import basket.
• The palm oil is primarily sourced from Indonesia and Malaysia, soya oil from Argentina and Brazil, whereas Ukraine and Argentina are the major suppliers of sunflower oils to India.
• Apart from a significant burden on the government’s exchequer, dependence on the international market for edible oils causes price volatility affecting both the consumers and producers.
  • • For instance, the ongoing Ukraine-Russia conflict led to lower production of sunflower crops in Ukraine (world’s largest sunflower oil exporter before the beginning of the conflict).
    • Subsequently, the government has to reduce the import tariff to ease the domestic price.
• India has the potential to increase the domestic production of oilseeds which could reduce the import dependence and also benefit the farmers.

Steps taken by the government –

• The Technology Mission on Oilseeds (1986) – Helped India to increase the area under oilseeds from 9 million tons in 1986 to 32 million tons in 2018-19.
• This has been converted into a National Mission on Oilseeds and Oil Palm (NMOOP) in 2014. The components of NMOOP are incentive for seed, farm implements including efficient water application tools covered, etc.
• National Food Security Mission (NFSM) – Oil seeds were merged under revamped NFSM from the year 2018-19, boosting oil seeds production.
• National Edible Oil Mission-Oil Palm (NMEO-OP) scheme announced by government in In August, 2021 for self-reliance in edible oil and involves investment of over Rs. 11,000 crore (over a five year period).
• Oil Palm Area Expansion under Rastriya Krishi Vikas Yojana – Increasing the minimum support prices of oilseed crops, creation of buffer stock for oilseeds, cluster demonstration of oilseed crops, etc.
• Export Import Policy on edible oils –
  • • In order to ensure availability of edible oil in the country, export of edible oil was banned in 2008, which was extended from time to time.
    • In order to harmonise the interests of farmers, processors and consumers, the government reviews the duty structure of edible oils from time to time.
• E-Governance initiatives –
  • • In order to improve and systemise the data management system in the vegetable oil sector, the Directorate of Sugar & Vegetable Oils under Department of Food and Public Distribution has developed a web-based platform.
    • This has helped the Government to take prompt and informed policy decisions for better management of the vegetable oil sector.