New Delhi has struggled to contain rising oil prices.
India has reduced its tax on crude palm oil imports (CPO) to 5% from 7.5 percent, according to the government. India is the world’s largest edible oil importer and tries to lower local prices to help domestic refiners as well as consumers.
According to industry officials, the reduction in tax, called the Agriculture Infrastructure and Development Cess or AIC, will widen the gap between CPO and refined oil import duties. It will make it cheaper for Indian refiners and CPO imports to be imported, Reuters reported.
The tax cut went into effect on Sunday.
According to B.V. Mehta (executive director of Solvent Extractors Association of India, based in Mumbai), the import tax gap between CPO oil and refined palm oil will widen after the AIDC reduction.
This will benefit Indian refiners. However, the government must increase the difference to 11 percent to encourage local refining.
Separately, the government announced that it would extend a reduction of a separate, basic customs duties on edible oils until September 30, in a separate notification. The tax reduction was supposed to expire on March 31,
India imports more then two-thirds of its edible oils and has been struggling with a rally in local oil price over the past few months.
Sensitive towards inflation
The country imports palm oil mostly from Indonesia and Malaysia. Other oils such as sunflower, soy, and other oils come from Russia, Brazil and Ukraine.
According to Sandeep Bajoria of Sunvin Group, a vegetable oils brokerage and consultancy firm, almost half of India’s palm oil imports were from refined palm oil.
Bajoria stated that the revised tax structure could reduce the share of refined palm oils to 20%.
Indian refiners are asking New Delhi for a change in the import duty structure. Because overseas buying of refined Palm Oil was cheaper than CPO, due to higher taxes imposed from producing countries on exports CPO, they have been asking for a change in the import duties structure.
India’s government has tried to control inflation in its domestic prices, taking into account the sensitive electorate of India. It has reduced import taxes, increased stockpile limits, and suspended futures trading in edible oil and oilseeds.