Edible oils made India-ASEAN FTA out of reach in 2006
The Hindu | 25 December 2006
Edible oils made India-ASEAN FTA out of reach in 2006
New Delhi, Dec 25. (PTI): In a country where oil diplomacy usually relates to petroleum resources, the year 2006 must have come as a lesson for top trade and foreign policy makers.
For, India’s efforts in strengthening ties with other Asian countries as part of its "Look East" policy suffered a setback over serious differences with ASEAN on another type of oil - the one used for cooking.
Edible oil, the country’s second largest imported commodity after crude petroleum, was the most important reason for the failure to seal the key Free Trade Agreement between India and ASEAN, although there are divergent views on other commodities such as pepper and black tea as well.
The year also saw the Government reducing customs duty on edible oils, but contrary to expectations imports declined as speculators found themselves on the back foot and domestic output of oilseeds and consequently that of edible oils rose.
Edible oil, specifically vanaspati, also remained in the news for India-Sri Lanka trade relations, with domestic industry divided over imposing a cap on imports under the bilateral FTA with the island nation.
But Indian policy makers faced their toughest test in bilateral trade pacts as they tried to balance domestic interests and international relations following demands by Malaysia and Indonesia, the world’s two largest exporters of palm oil, to include crude and refined palm oil in the list of items for duty cuts under the proposed FTA.
The demand, if accepted, would almost surely destroy the domestic industry in India, a country which imports more than 40 per cent of its edible oil requirement of about 100 lakh tonnes.
While the ASEAN FTA will affect the sector in future, it was the duty cut strategy that worked wonders this year.
In a bid to check the skyrocketing prices of edible oil, the Government announced a 10 per cent customs duty cut in August on the palm group of oils. The duty cut was initially for three months but was later extended till December 31.
The move caught speculators by surprise and forced hoarders to release their stocks in the domestic market, resulting in greater supply of edible oils in the country.
This also led to a 12 per cent dip in imports to 44.17 lakh tonnes in oil year 2005-06, which runs from November 1 to October 31, compared to 50.42 lakh tonnes a year earlier.
The other major reason for the dip in imports was the rise in domestic oil production due to robust oilseeds output.
Production of nine major oilseeds, including groundnut, soyabean and mustard, rose to 239 lakh tonnes in 2006 against 221 lakh tonnes in 2004-05 and 233 lakh tonnes in 2003-04, as per the Central Organisation for Oil Industry and Trade.
The industry body, however, said this year’s output falls short of the targeted 294 lakh tonnes by about 18 per cent.
Area under cultivation of oilseeds has also slipped eight per cent to 87.60 lakh hectares so far in the Rabi season.
The acreage declined due to diversion of sowing area of rapeseed and mustard to channa in Madhya Pradesh and to wheat in Rajasthan and Haryana. Mustard acreage has also declined to 64.67 lakh hectares from 70.41 lakh hectares a year ago.
But though imports fell, prices of most edible oils remained on the steeper side in wholesale and retail markets.
While prices of refined groundnut oil have risen over 22 per cent by December this year to Rs 1,030 per tin of 15 kgs, mustard oil prices increased 15 per cent to Rs 740 per tin.
