21/03/2008 (The Economic Times), New Delhi - Call it operation attack inflation. With the inflation inching towards 6% mark, the government on Thursday slashed Customs duty on edible oils and rice to contain their prices in the domestic market. While the Customs duty on rice has been slashed to nil from 70%, duty on all crude and refined edible oil imports has been substantially reduced from the current level of 52-75% to 20% and 27.5% respectively.
The steps follow finance minister P Chidambaram’s assurance to Parliament on Monday that the government will take every step, including fiscal measures, to contain inflation.
“The government has been keeping a close watch on the domestic and international prices of essential commodities, particularly food items such as wheat, rice, pulses and edible oils to keep inflation under check. It has also taken appropriate fiscal measures from time to time to achieve the objective,” an official statement said here.
With the duty rejig, semi-milled or wholly-milled rice imports would attract nil Customs duty instead of 70%. The duty exemption would be available till March 31, 2009. It may be pointed out that the international prices of rice have increased sharply from $430 in August 2007 to $590 in February 2008. Moreover, domestic retail price in Delhi markets increased from Rs 15 to Rs 18 per kg over the period.
The duty reduction will help in cushioning the domestic prices of the commodities from the rise in prices internationally. Scrapping the import duty would not make an impact unless the government allows private traders to import rice directly. As of now, imports are canalised through state trading agencies like MMTC. For prices to come down, rice should be shifted to the free list of imports, industry sources said. Vietnam and Myanmar could be sources of cheaper rice (25% brokens) for the domestic market as freight would also be cheap for those importing rice through ports like Kolkata, they added.
The Customs duty on crude palm oil including crude palmolein has been reduced from 45% to 20%, refined palm oil including RBD palmolein from 52.5% to 27.5%, crude mustard/rapeseed/colza/canola oils from 75% to 20% and crude sunflower oil from 40% to 20%. Import duty on refined mustard/rapeseed/colza/ canola oils has been brought down from 75% to 27.5% and refined sunflower oil from 50% to 27.5%.
Besides, tariff values of crude palm oil ($447 PMT), RBD palm oil ($476 PMT), crude palmolein ($481 PMT) and RBD Palmolein ($484 PMT) have been frozen at July 2006 levels.
Owing to a surge in demand, international prices of edible oils have continued to exhibit a sharp and steady upward trend in recent months. For instance, the international price of crude palm oil (fob Malaysia) has increased from $770 PMT in the last week of August 2007 to $1,220 PMT in the last week of February 2008.
During the period, the international price of sunflower oil (cif Rotterdam) has increased from $947 to $1695 PMT, an increase of 79%.
The domestic prices also have been feeling the heat and, despite two rounds of reductions in Customs duties on palm oil in April 2007 by 10 percentage points and again in July 2007 (by 5 percentage points), wholesale prices of RBD palmolein (Mumbai) increased from Rs 4,500 per quintal in August 2007 to Rs 5,820 per quintal in February 2008.
Over the same period, the price of sunflower oil (Mumbai) has increased from Rs 4,900 per quintal to Rs 8,250 per quintal, and of mustard oil (Delhi) from Rs 4,960 per quintal to Rs 6,330 per quintal.
Full exemption from Customs duty is available for wheat. The exemption had been extended beyond the expiry date of December 31,2007, and wheat flour has also been fully exempted from Customs duty.