The Indian government has announced to cut tariffs on crude and refined palm oil imports from Southeast Asian countries, effective January 1.
The import tax on crude palm oil produced in Indonesia, Malaysia, and other ASEAN members was cut to 40 percent from 44 percent, while a duty on the refined palm oil was lowered to 50 percent, and to 45 percent for Malaysian imports, from 54 percent, according to a notification issued by the ministry of finance the day just before the new year.
In March last year, India raised the duty on imported crude palm oil to 44 percent from 30 percent and elevated the import tax on refined palm oil to 54 percent from 40 percent.
The industry expected that the tax cut would encourage domestic suppliers to import more palm oil in coming months, but not necessarily benefit Indian consumers as it would impact the domestic palm oil refining industry and curb oil palm plantations.
“Palm oil is now seen as more competitive due to the duty reduction and this will lead to higher imports from January onwards,” said Sandeep Bajoria, chief executive of the Sunvin Group, a vegetable oil importer in Mumbai.
India, the world’s biggest edible oil buyer, imports 60 percent — about 15.5 million tons annually — of its edible oil demand, largely from Malaysia and Indonesia for palm oil, Argentina for soya oil and Ukraine for sunflower oil.
In the 2017/18 marketing year, its palm oil imports slipped 6.4 percent year-on-year to 8.7 million tons, according to the industry data.
Indonesia and Malaysia, the top two palm oil suppliers to India, were seeking a tariff cut by New Delhi on their exports as both countries were seeing increasing stockpiles due to higher production.
India’s palm oil imports could have dipped in December but will rebound in January as some importers had postponed shipments in anticipation of duty reduction, an industry source said.
The tax cut has closed the duty gap between crude and refined palm oil to 5.5 percent from 11 percent for shipments from Malaysia, which could result in increased imports of refined palm oil, the source added.
“This is a death knell for the domestic refining industry and will halt expansion of palm plantations in the country,” said BV Mehta, executive director of Solvent Extractors’ Association (SEA), a Mumbai-based trade body.
India has 70 percent of its edible oil consumption imported from foreign countries, as compared to a 44-percent proportion in 2001/02.
As Indonesia has traditionally cornered India’s palm oil market, the tax cut will now allow Malaysia to raise its share, a Mumbai-based dealer said.