Industry Groups Applaud Reduction in Crude Oil Customs Duty

Industry associations in India have expressed strong support for the government’s recent decision to cut the basic customs duty on crude edible oils from 20% to 10%. This move is seen as a crucial step to bolster domestic refiners and reduce the reliance on imported finished products. The effective import duty has now decreased from 27.5% to 16.5%, while the duty on refined edible oils remains significantly higher at 32.5%. This policy change aims to address the rising imports of refined palm oil and enhance the competitiveness of local producers.

Government’s Duty Reduction Announcement

On Friday, the Indian government announced a significant reduction in the basic customs duty on crude edible oils, which includes palm, soybean, and sunflower oils. The duty has been slashed from 20% to 10%, marking a substantial shift in policy aimed at supporting the domestic refining industry. The effective import duty now stands at 16.5%, down from the previous 27.5%. This change comes in response to growing concerns from industry stakeholders regarding the increasing imports of refined palm oil, which have been detrimental to local refiners.

The Solvent Extractors’ Association (SEA) and the Indian Vegetable Oil Producers’ Association (IVPA) have both welcomed this decision, highlighting its importance in maintaining a competitive edge for domestic producers. The associations had previously urged the government to widen the duty gap between crude and refined edible oils to protect local refiners from the influx of cheaper imported products.

Impact on Domestic Prices and Consumer Benefits

Industry leaders believe that the government’s decision will have a positive impact on domestic prices for edible oils. Sanjeev Asthana, President of SEA, stated that the increase in the duty differential from 8.25% to 19.25% is a timely intervention that will discourage imports of refined palm oil and redirect demand towards crude palm oil. This shift is expected to revitalize the domestic refining sector, which has faced challenges due to the competitive pricing of imported refined oils.

Asthana also noted that while the overall volume of edible oil imports may not change significantly, consumers are likely to benefit from lower domestic prices. The reduction in customs duty is anticipated to create a more favorable market environment for local refiners, ultimately leading to cost savings for consumers.

Concerns Over Rising Imports

India is heavily reliant on imports for its edible oil needs, sourcing over 50% of its requirements from abroad. In the 2023-24 oil marketing year, the country imported 159.6 lakh tonnes of edible oil, valued at approximately Rs 1.32 lakh crore. Key suppliers include Malaysia and Indonesia for palm oil, and Brazil and Argentina for soybean oil.

The SEA and IVPA have raised alarms about the increasing share of refined palm oil imports, which accounted for over 20% of total palm oil imports in the 2023-24 period. This trend has been exacerbated by the narrow duty gap between crude and refined oils, which incentivized the import of finished products. The recent policy change aims to address these concerns and protect the interests of local refiners.

Industry Reactions and Future Outlook

The response from industry leaders has been overwhelmingly positive. Sudhakar Desai, President of IVPA, praised the government’s decision to expand the duty gap, viewing it as a significant boost for domestic manufacturing. B V Mehta, Executive Director of SEA, described the revised duty structure as a beneficial arrangement for both vegetable oil refiners and consumers.

Previously, the limited 8.25% duty gap had encouraged imports of refined palm oil, which was often priced lower than crude palm oil. As of May 29, the cost-and-freight price of refined palm oil was reported to be USD 45 per tonne cheaper than that of crude palm oil, further skewing trade in favor of imports. The new customs duty structure is expected to correct this imbalance and foster a more sustainable domestic market for edible oils.

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