India Likely to Tax Vegoil Imports, Purchases to Drop.

India looks set to tax imports of crude edible oil and raise a levy on refined varieties early next year, conceding industry's demand for a lid on surging imports to help refiners boost falling margins.

The steps will marginally cut purchases by the world's largest buyer of cooking oil and hurt small consumers who will have to pay more, but the industry says the levy will encourage oilseed farmers to make greater efforts to plug a yawning demand gap.

India, which imports more than half its annual needs of 16.5 million tonnes, expects domestic edible oil supplies to rise by 1 million tonnes in 2010/11, swelled by higher oilseeds output, thanks to a better monsoon after last year's drought.

One analyst said edible oil imports were likely to fall 3 percent in the year to October 2011 after India bought a record 8.8 million tonnes in the year to October 2010, helping drive up global palm oil prices 42 percent .

"With the likelihood of a rise in oilseed production, domestic oil supplies are expected to rise by 1 million tonnes this year from 7.7 million last year," said Veeresh Hiremath, chief analyst with brokerage Karvy Comtrade, based in Hyderabad.

India's edible oil imports have been rising for the past 5 years, prompting industry officials to reinforce their demand for an increase in the duty.

"There is a strong possibility of an import duty on crude and higher duty on refined edible oils during the budget. The government is likely to finally meet the long-pending demand of the industry," said Jyoti Kanda, director of trading firm Kanda edible oils in Rajasthan, the main rapeseed-growing state.

Finance Minister Pranab Mukherjee was expected to announce the measures when he presented the national budget in February, he said.

The country will take a call early next year on either slapping a duty on crude vegetable oils or raising the tax on refined variants, a senior government official, who asked not to be identified, said.

Prime Minister Manmohan Singh's government, which was voted back to power last year with a greater mandate from the rural poor, would prefer to protect domestic oilseed growers from unbridled imports by slapping on the duty, especially when food prices are easing, some traders say.

India's annual food inflation eased to its lowest level in 18 months to 8.6 percent in the year to Nov. 20 from 10.15 percent in the previous week.

It would be easier for the government to introduce one duty and raise the existing one in February as the rapeseed harvest due in March would keep oilseed and edible prices under control, Kanda said.

The government opened the floodgates to imports in April 2008 by dropping a crude vegetable oil import tax and cutting the duty on refined oils to 7.5 percent from 27.5 percent.

Helped by lower duties, cooking oil purchases by India, which dislodged China as the world's No. 1 edible oil importer in 2009, rose 7.3 percent to a record in 2009/10.

Edible oils are one of the most important items of diet for Indians, who tend to be partial to high-calorie and deep-fried food. Typically the consumption of the cooking oil rises during major festivals.

Edible oils make up a mere 3.04 percent in the widely-watched wholesale price index, Kanda said. That could encourage the government to be bold.

Singh's government, battling a series of corruption charges, will be eager to keep rural voters happy, particularly with elections just round the corner in some states.

Singh's Congress party, which heads the coalition government, took a drubbing last month in an election in the eastern state of Bihar, which sends seven percent of the country's lower house lawmakers to parliament.

Even if consumers might have to spend a little more, encouraging farmers is important to attain a long-term goal of self-sufficiency in vegetable oils, said Sudhir Kumar Panwar, chief of the Kishan Jagriti Manch, a farmers' body.

So it is only a matter of time before the Indian government starts raising import taxes for all palm oil products, a Malaysian physical palm oil trader said.

"Right now the farming lobby, or rather the farming vote bank, would be the most important for the government, as there is a good oilseed crop coming in and global vegetable oil prices are still high," the Malaysian trader said.

Source : in.reuters.com