Indian refiners of edible oil have sought a cut in the import duty on crude palm oil, which they said will offer the local industry a level playing field at a time when imports of refined products are growing at a quick pace.

Their lobby group, the Solvent Extractors' Association of India, has written to the Prime Minister, requesting to cut the duty on their key raw material to 5% from the current 12.5%. It has also sought retaining the current 20% duty on refined palm oil imports.

Palm oil exporting countries levy a 12% duty on crude shipments and 5% on refined oil to protect their domestic industry. When the local import duty is added to this, say Indian refiners, the cost becomes heavy for them.

"It (cutting duty on crude imports) will not affect the government's agenda of checking inflation as the prices of edible oil will not be impacted," said BV Mehta, the association's executive-director.

Currently, edible oil prices are at last year's levels, Mehta said. He sees the prices following a usual patterns, with a marginal increase likely towards the upcoming festival season.

The local industry is worried about increasing imports of refined palm oil in India. The share of imported refined oil has now reached 32% of the total import of palm oil, Mehta said, calling it the "highest percentage" in recent years. This trend is expected to gain momentum due to forthcoming festival season, Mehta said.

 The share of refined palm oil in total imports was 18% in fiscal 2014 and 20% in the year before that.

"The refineries importing crude palm oil are barely managing to recover variable cost. The entire fixed cost, interest on capital expenditure, depreciation and profit are left uncovered," Mehta said. "In such circumstances, no refinery can sustain or survive."

Refiners are on the edge as the landed cost of crude and refined oil is almost at par, a refiner said. "Cheap refined oil imports will push most refiners into the red."

The industry is also looking at greater volumes of byproducts in case the import of crude palm oil is increased. Byproducts like palm stearin and palm fatty acid distillate are key raw material for the chemical and soap industry. Some of the byproducts are used for the manufacture of vanaspati, bakery shortenings and margarine.

"In the last budget, the import duty on palm stearin and palm fatty acid distillate was reduced to nil," said an industry representative. "While the import duty on these byproducts was made nil, the duty differential between crude and refined oil was retained at 7.5%, thereby making the refining route of crude more expensive than direct import of refined palm oil."

Sources :economictimes.indiatimes.com