Why Modi’s government is alarmed by edible oil prices but not gasoline and diesel


Illustration: Ramandeep Kaur

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New Delhi: Crude oil and edible oil have been the two main commodities that have driven inflation up in the country in recent months. Their prices have risen sharply over the past six months, mainly due to the high taxes the government imposes on them.

As gasoline and diesel prices have passed the psychological bar of Rs 100 / liter in many cities, the rate palm oil, the most imported edible oil in the country, rose more than 60 percent last year to reach Rs 138 / kg as of June 1, 2021 compared to Rs 86 / kg as of June 1, 2020 – its highest price recorded in the past 11 years.

Likewise, the price of other edible oils also reached new levels during the same period – soybeans from Rs 100 / kg to Rs 153.5 / kg and sunflower from Rs 110 / kg to Rs 172 / kg d ‘oil.

But while the central government appears to be concerned about edible oils – it has decided to reduce import duties on crude palm oil and refined palm oil – it has not given any relief to oil prices. ‘gasoline and diesel.

Analysts differ on the reasons why the central government did not intervene to reduce the prices of gasoline and diesel. One school of thought is that gasoline and diesel, which are heavily taxed, provide a substantial share of income compared to edible oil. Another point of view is that reducing import duties in the case of edible oil will not do much harm to the government as their international prices are skyrocketing. The prices are so high that the income from edible oil imports will continue to remain high.

Illustration: Ramandeep Kaur
Illustration: Ramandeep Kaur

Why import duties have been reduced on edible oil

The central government, in a order issued last week, cut import tariffs on crude palm oil to 30.25 percent by reducing base tariffs by 5 percent. The import duty on refined palm oil was also reduced to 41.25 percent from 49.5 percent previously.

ICRIER (Indian Council for Research on International Economic Relations) Senior Visiting Scholar and former Agriculture Secretary Siraj Hussain said one of the main reasons this has not happened in the crude oil sector is that gasoline and diesel provide the government with a lot of revenue.

“The amount of revenue collected by the central government is much larger in petroleum than in edible oils. In fact, oil is a major source of income, especially after the government brutally cut corporate tax rates just months after the presentation of the Union budget in 2019, ”he said. at ThePrint.

“In addition, edible oil inflation has a direct impact on ordinary citizens by increasing food inflation, which is not the case with oil prices,” he added. “The government has therefore decided to reduce import tariffs on edible oils but not on crude oil.”

Hussain also pointed out that the government has requested that stocks of raw materials be communicated to them regularly, adding that this is a very inefficient way of knowing private stocks.

“A much simpler and more efficient way would be to make the Electronic Negotiable Warehouse Receipt (e-NWR) mandatory across the country. This would allow the government to get real-time and much more accurate updates on stock availability as well as movements across the country, ”he said. “This can go a long way in ensuring better decision making and policy formulation regarding food inflation in the future.”

Other experts believe that the central government opted for lower tariffs because even after the decision, it will not lose much in the case of edible oils due to the high international rates.

“Last year, with the falling prices of edible oils, the Indian government earned around 30,000 crore rupees as revenue from a total import of 75,000 crore rupees from November 2019 to October 2020”, BV Mehta, executive director of the Solvent Extractors’ Association of India (SEAI), told ThePrint.

“In the current cycle, since November 20, 2020, the price has increased by 70 to 80%,” he added. “The total import bill will not be less than Rs 120,000 crore, of which the government will get revenues of Rs 40,000 to 45,000 crore. The government should use part of this fund to increase oilseed productivity to reduce our dependence on imported oil, which is now almost 65%. “

On the international market, the prices of edible oils have risen sharply in recent months.

the the price Crude palm oil for actively traded futures contracts on Bursa Malaysia’s derivatives exchange was listed at Rs 69,547.45 / tonne on May 25, up from Rs 40,780.91 / tonne on the same day a year ago .

Similarly, at the Chicago Board of Trade, the closing soybean price for July delivery was Rs 41,579.79 / tonne compared to Rs 22,752.17 / tonne on May 24.

“The government may also have reduced tariffs on palm oil in anticipation of the phased unlock and the upcoming holiday season, which could lead to increased consumption of edible oil,” Mehta said.

Read also : Why Modi’s Government’s Popular Food Program Has Shifted From ‘Choice Dal’ To No Dal At All

The conundrum of edible oil and crude oil

India meets much of its domestic demand for crude as well as edible oil primarily through imports, both of which are among the top three commodities imported into the country along with gold.

According to The data of the Solvent Extractors’ Association of India and the Food and Public Distribution Department, import duties on crude palm oil increased from 0% in 2012 to 35.75% in 2021. The peak import duties on crude palm oil stood at 44% in 2018 .

Duties on refined, bleached and deodorized palm oil were also only 7.5% in 2012, but were increased to 54% in 2018. Crude sunflower and soybean oil are also subject to tariffs. 38.5% import duty into the country.

There is a similar heavy taxation on gasoline and diesel too. As reported by ThePrint, the Union government levies excise duty and fuel tax and the state levies value added tax (VAT).

Taxes currently represent 58 percent of the retail price of gasoline and about 52 percent of the retail price of diesel. This means that if the price of gasoline is Rs 100 per liter, the taxes collected by the central government and the state governments together amount to Rs 58. Of this amount, the excise duty of the Union government is around Rs 32-33 and the rest is VAT by the states.

In addition to these heavy taxes levied, these two commodities have been marred by high inflation in recent months.

Indian fuel inflation in many cities rose 11.6% in May, from 7.9% in April and 4.5% in March.

Edible oil also recorded a maximum jump of 30.8% in May, propelling retail price inflation, according to central government data, more than 6 percent.

The increase in domestic prices for edible oils also reflects international prices as India imports more than 50 percent of its domestic demand through imports.

While our national production of vegetable oils is around 7.5 to 8 million tonnes, imports represent 13 to 14 million tonnes valued at 10 billion dollars (Rs 75,000 crore).

Growing imports

The import of edible oil has also increased alongside the growing demand in the country.

While the total consumption of edible oil in the country increased from 249.52 lakh metric tons (LMT) in 2017-18 to 259.22 LMT in 2018-19, the import of edible oil during the period corresponding increase from 145.92 LMT to 155.70 LMT.

The availability of domestic edible oil during the same period changed slightly in the 103 LMT, maintaining the country’s dependence on imports. In addition, the country’s palm oil imports increased by 13%, from 73.98 LMT in 2019 to 84 LMT in 2020.

Likewise, data from the Ministry of Petroleum and Natural Gas shows that crude oil imports increased from 333.48 LMT in 2018-19 to 437.88 LMT in 2019-20.

(Edited by Arun Prashanth)

Read also : Modi’s government imposes stock limit on pulses to curb price hikes

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