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Making India Atmanirbhar in Oilseeds

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May 22, 2021

What is the issue?

  • At India’s Trade Policy Review meeting and WTO meetings, several commodity exporting countries had raised concerns over India’s agriculture trade policies.
  • Among them, oil seeds is an important commodity; here is a look at the trade-related aspects of it.

What are the concerns raised?

  • Agricultural commodities in question include pulses and vegetable oils that India imports in sizeable quantities.
  • The US and the EU flag certain trade-related issues including increase in import duties.
  • They also raise certain questions about India’s agricultural support programmes such as the minimum support price for various crops.
  • At the recent WTO Committee on Agriculture meeting, member-countries questioned India on various issues including -
      1. continued restrictions on pulses import
      2. wheat stockpiling
      3. short-term crop loans
      4. export subsidies for skimmed milk powder
      5. export ban on onions
  • The latest attack is on India’s ambitious plan to step up domestic oilseeds output so as to reduce dependence on vegetable oil imports.
  • [It costs roughly $10 billion (about ₹75,000 crore) in foreign exchange annually for bringing in 13-14 million tonnes of palm, soybean and sunflower oils.]
  • WTO member-countries are questioning India mainly regarding incentives to oilseed growers to boost output.

What is to be noted here?

  • One, other countries have no business to question, so long as the incentives are well within the permissible limits.
  • Second, there are ways India can boost domestic oilseeds output even without direct financial incentives or monetary support to growers.

What is the flaw with vegetable oil imports policy?

  • Raising the Customs duty on vegetable oil imports has hardly had any positive impact on domestic oilseeds production in the last 25 years.
  • Notably, more often, vegetable oil imports are excessive and speculatively driven.
  • As a result, building large inventory of low-priced imported oils depresses domestic oilseeds prices.
  • It consequently discourages oilseed growers.
  • This has been going on for two decades and must be stopped.

What does this call for?

  • Instead of the tariff route, India should look at the trade policy.
  • The system of contract registration and monitoring of imports present for steel and copper should be extended to vegetable oils.
  • The government must mandate that all vegetable oil import contracts must be registered with a designated authority.
  • Contract details will include quantity contracted for, type of oil, origin, price and expected arrival time.
  • This information should become the basis for intervention, if any, needed.

Should importers’ credit period be cut?

  • Now, overseas suppliers grant 90 to 150 days credit to Indian importers.
  • But the cargo reaches Indian shores in about 10 days (palm oil) or 30 days (soft oils).
  • So, the Indian importer sells the material immediately and enjoys liquidity for several months.
  • During this period, the importers indulge in rampant speculation and over-trading before they are required to remit payment.
  • This is leading to a never-ending import cycle.
  • Many veg-oil importers are actually in an ‘import debt-trap’.
  • To prevent this, the credit period enjoyed by veg-oil importers should be restricted to a maximum of 30 days for palm oil and 45 days for soft oils.
  • This will automatically discourage excessive imports, over-trading and speculation.

What is the way forward?

  • India’s oilseed production has got trapped at 31-32 million tonnes.
  • It is essential to break this stagnation and aim to increase the output by at least 2 million tonnes a year, if not more.
  • Import contract registration, strict monitoring of import and restricted credit period will infuse a much needed discipline in the import trade.
  • Reducing speculative and excessive imports of vegetable oil will immediately have a positive effect on domestic oilseed prices and encourage growers.
  • Surely, achieving Atmanirbhar or self-sufficiency is a challenge. But India can become substantially self-reliant over the next 5 years or so.


Source: Business Line

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