Mumbai: As part of its ongoing exercise to contain inflation and augment supplies of essential food items, the Centre has decided to import up to 10 lakh tonnes of edible oils for supply through the public distribution system.
The imported oils would be refined and/or packed locally and sold at a subsidised rate — that is Rs 15 a litre below cost.
The move is sure to have a salutary effect on open market prices. This decision is something the Government ought to have taken two years ago.
Its failure to do so has meant consumers suffered unnecessarily and in some sense, short-changed.
But how well is the latest welcome decision going to work on the ground? Is there a more effective way of dealing with the price crisis, as far as edible oil is concerned?
Reports from the markets suggest that the Government parastatals such as NAFED and PEC have already issued a tender and begun to contact refiners and packers to handle the imported material.
A good strategy
Communication from these agencies indicates that crude oil would be imported for refining and packing locally. This may not be a good strategy after all.
Importing crude oil, getting it refined and packed locally is an onerous task, which will involve multiple handling, processing losses and more critically, time lag between crude oil imports and final product reaching consumers.
There are uncertainties in this long drawn out process, in addition to accounting issues.
This is a potential area for some people to make unearned profits. The intended purpose of the policy decision — to augment availability and rein in prices — stands the risk of being defeated in the event of hitches and time lags/delays.
Ort refined oil
On the other hand, import of refined oils would be a much safer option. Refined oils are readily marketable. Refined oils imported in bulk can be quickly moved to consuming centres in bulk, packed and distributed. The time lag would be considerably reduced, so will be the cost. This will have an immediate salutary effect on market prices. The speculators’ propensity to take advantage of price movements would be curtailed.
If the Government is really serious about gaining an upper-hand over the edible oil market, it would be advisable to import refined oils, that too without customs duty. The current rate of duty is 7.5 per cent.
O-duty refined oils
While there is a strong case for complete waiver of customs duty on refined oils for all categories of importers, the least the Government can do at this point of time is to allow duty-free import of refined oils by State agencies for supply through PDS.
The domestic oil lobby would of course raise objections to duty-free import of refined oils. There would be loud protestations that the domestic refining industry would suffer and oilseeds growers would be hurt. These simply are exaggerated scare the domestic industry keeps raising from time-to-time. The industry stands to lose little even if refined oils are allowed at zero duty.
The domestic players have made enormous profit in the last one year and more as a result of a rising market. They would of course hate to see a squeeze on their opportunity to continue to profit from market conditions. At least for the next six months, the Government must brush aside all such objections and ensure the really poor and needy get cooking oil at rates they can afford. Today’s priority is not the industry, but the aam aadmi in whose name the present Government rode to power four years ago.
There already are representations from the industry that a sharp decline in vegetable oil prices — following the recent precipitate action by the Government — may affect oilseed planting in the ensuing kharif season.
There is little evidence that oilseed growers are worried about the fall in cooking oil prices.
After all, growers are consumers too. Also, oilseed prices are still ruling above the minimum support price. So, far from hurting growers, the recent price fall is seen hurting the vegetable oil industry and trade. The shrill protests come as no surprise.
The imported oils would be refined and/or packed locally and sold at a subsidised rate — that is Rs 15 a litre below cost.
The move is sure to have a salutary effect on open market prices. This decision is something the Government ought to have taken two years ago.
Its failure to do so has meant consumers suffered unnecessarily and in some sense, short-changed.
But how well is the latest welcome decision going to work on the ground? Is there a more effective way of dealing with the price crisis, as far as edible oil is concerned?
Reports from the markets suggest that the Government parastatals such as NAFED and PEC have already issued a tender and begun to contact refiners and packers to handle the imported material.
A good strategy
Communication from these agencies indicates that crude oil would be imported for refining and packing locally. This may not be a good strategy after all.
Importing crude oil, getting it refined and packed locally is an onerous task, which will involve multiple handling, processing losses and more critically, time lag between crude oil imports and final product reaching consumers.
There are uncertainties in this long drawn out process, in addition to accounting issues.
This is a potential area for some people to make unearned profits. The intended purpose of the policy decision — to augment availability and rein in prices — stands the risk of being defeated in the event of hitches and time lags/delays.
Ort refined oil
On the other hand, import of refined oils would be a much safer option. Refined oils are readily marketable. Refined oils imported in bulk can be quickly moved to consuming centres in bulk, packed and distributed. The time lag would be considerably reduced, so will be the cost. This will have an immediate salutary effect on market prices. The speculators’ propensity to take advantage of price movements would be curtailed.
If the Government is really serious about gaining an upper-hand over the edible oil market, it would be advisable to import refined oils, that too without customs duty. The current rate of duty is 7.5 per cent.
O-duty refined oils
While there is a strong case for complete waiver of customs duty on refined oils for all categories of importers, the least the Government can do at this point of time is to allow duty-free import of refined oils by State agencies for supply through PDS.
The domestic oil lobby would of course raise objections to duty-free import of refined oils. There would be loud protestations that the domestic refining industry would suffer and oilseeds growers would be hurt. These simply are exaggerated scare the domestic industry keeps raising from time-to-time. The industry stands to lose little even if refined oils are allowed at zero duty.
The domestic players have made enormous profit in the last one year and more as a result of a rising market. They would of course hate to see a squeeze on their opportunity to continue to profit from market conditions. At least for the next six months, the Government must brush aside all such objections and ensure the really poor and needy get cooking oil at rates they can afford. Today’s priority is not the industry, but the aam aadmi in whose name the present Government rode to power four years ago.
There already are representations from the industry that a sharp decline in vegetable oil prices — following the recent precipitate action by the Government — may affect oilseed planting in the ensuing kharif season.
There is little evidence that oilseed growers are worried about the fall in cooking oil prices.
After all, growers are consumers too. Also, oilseed prices are still ruling above the minimum support price. So, far from hurting growers, the recent price fall is seen hurting the vegetable oil industry and trade. The shrill protests come as no surprise.
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