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Vanaspati industry on brink of closure: IVPA

Navhind Times, Goa

Vanaspati industry on brink of closure: IVPA

20 June 2005

UNI, New Delhi, June 19: With India entering into Free Trade Agreement (FTA) with Sri Lanka and other SAARC countries, a number of vanaspati manufacturers have shifted their production base there to avail concessions, sounding a death-knell for the domestic industry by rendering it non-competitive.

The Indian vanaspati producers say the Free Trade Agreements (FTAs) with SAARC countries have resulted in heavy cheaper imports in the country, taking a toll on the domestic industry.

After implementation of the FTA in March, 2000 and inclusion of vanaspati for full duty exemption, certain Indian and multinational companies shifted to Sri Lanka for availing of the benefits of import duty exemption plus other concessions like 100 per cent ownership of assets to foreigners, full tax holiday of 3-12 years, duty free imports of raw material till the project continues and duty free imports of capital goods.

The raw material like crude palm oil is available to a Sri Lankan manufacturer at zero customs duty whereas an Indian manufacturer has to pay 80 per cent customs duty, giving an advantage to a Sri Lankan manufacture of over Rs 17,000 per tonne.

The precarious situation has now forced the Indian vanaspati producers to seek level playing field from the government to stay in production otherwise foreign manufacturers are set to ruin their industry.

Indian Vanaspati Producers Association (IVPA) says that “the seven decades old industry is on the brink of enmasse closure. The going is becoming tougher day by day and year by year. Over 90 units have already closed down.”

India’s annual consumption of vanaspati is estimated at 13 lakh tonne, while domestic and foreign producers have been licensed to install units capable of making 48 lakh tonne of vanaspati.

The ever-increasing installed capacity that has crossed manifold the estimated annual requirement is also pushing the already sagging Indian industry to a closure.

IVPA executive director, Mr I R Mehra said that it started with Nepal a few years back, which after prolonged representations and suffering was capped at one lakh tonne per annum. This reprieve was given to the industry in 2002 at the time of re-negotiations/renewal of the Indo-Nepal Trade Treaty.

“Before the industry could fully recover from the Nepal shock, the imports have started picking up from Sri Lanka under the FTA signed with them in December, 1998 and fully implemented from March 1, 2000,” Mr Mehra added.

Lanka is not a large producer of edible oils and rely upon imports to meet its domestic demand. It produces only about 37,000 tonne per annum of coconut oil and imports 1.70 lakh tonne to meet its domestic demand out of which 1.05 lakh tonne is palm and palm kernel oil. Hence, they have to rely on additional imports of crude palm oil for manufacture and export of vanaspati to India.

The value addition norms of 35 per cent (which is already low as compared to the international standards of 40 per cent) are not even observed for exports to India as the Sri Lankan exporter is resorting to unfair means by giving over inflated costs and also including the element of profit in the fob price.

At the instance of the vanaspati associations and the combined pressure built up by them on the government right from January/February 2005 onwards, the government appointed a technical team on vanaspati to visit Sri Lanka to assess the actual value addition.

The joint team comprising government officials and industry representatives visited Colombo from May 9-11, 2005.

In fact, as per the assessment of the representatives from industry on the technical team, which visited Sri Lanka, the value addition is only about 18 per cent and, therefore, the duty free imports are not valid even under the FTA.

There are six units which are already in production and two are under installation. At the time of granting the licences to these units, a condition was imposed that the entire export will be to India only. The factories will also not be permitted to sell in Sri Lanka.

On account of pressure put by the government of India no further licences are being issued and the existing manufacturers’ production has been restricted to 25,000 tonne per annum per unit which would on annual basis amount to 2.5 lakh tonne per annum - which is a collosal amount considering the failing health of the domestic industry.

The Indian vanaspati industry is suffering from over installed capacity (48 lakh MTs) as against the demand of around 12-13 lakh MTs resulting in utilisation of only 27 per cent capacity.

If the domestic industry is to be given a level playing field then the government must either restrict the imports from Sri Lanka on the grounds that they do not qualify as per the rules of origin or give imported CPO to the industry on actual user basis at nil/nominal duty.