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Mahamad Rodzi Abdul Ghani




Mahamad Rodzi Abdul Ghani


Business Lines India



Extracting more
17/2/05 India - IN RAISING THE Customs duty on the palm group of oils by15 percentage points and reducing their tariff values to reflectinternational market conditions, the Government has in one masterstroketried to balance the interests of oilseed growers and consumers. Whetherthe Finance Minister, Mr P. Chidambaram, could have waited to make thechanges a part of the around-the-corner Budget may be debatable; but therationale of his action cannot be faulted. Indeed, it is positive for allstakeholders, including growers, consumers and processing industry. Whilethe changes are revenue positive, they are nearly neutral as far asconsumer prices are concerned. The psychological effect of the duty hikeis sure to support rapeseed/mustard prices that have been ruling wellbelow the minimum support price of Rs 1,700 a quintal. The processingindustry can have nothing to complain about because it will recover theadditional duty burden from consumers. So far so good.

In the edible oil sector, the next area of the Finance Minister'sattention should be the excise duty on refined oils and vanaspati.Manufacture of refined oils and vanaspati can yield more than Rs 700 crorea year. However, the duty exemption granted to units in specified areassuch as Kutch and the laxity in collection mean lower tax revenue on thisaccount. The collection mechanism needs to be tightened. If production ofsolvent-extracted oils is also brought under the excise net and levied aduty of, say, Rs 1,000 a tonne, then imported crude oils would have tobear a similar countervailing duty. This will remove the anomaly createdby the excise duty exemption to units in specified areas, and level thefield for all refining units regardless of their location. While price andtrade related measures such as duty changes are necessary, they are notsufficient to ensure the healthy growth and development of the oilseedseconomy. This important food-processing sector is becoming increasinglyimport dependentand constantly looks to the government for sops. Non-trade initiatives tostrengthen the domestic production base are critical. Shift of acreage insome of the irrigated regions from fine cereals to oilseeds, andprogrammes to raise oilseeds yields from the abysmally low levels of lessthan 1,000 kg a hectare deserve close attention. The Technology Mission onOilseeds needs a complete overhaul.

Instead of remaining dependent on government favours and concessions, theprivate sector can play a constructive role in augmenting indigenousoilseeds production by, say, establishing backward linkages. If cotton canlend itself to contract farming, why not oilseeds? Hopefully, the Budgetwill have a package to revitalise the industry, a part of which — forinstance, expeller mills - is turning sick because of lack of investmentand modernisation. In his last Budget, Mr Chidambaram confessed tooilseeds being a critical area because despite the 25-million-tonneproduction, edible oil imports were a staggering $2.5 billion. He promisedto help farmers diversify by promoting superior seed technology andthrough a policy of price support. In less than fortnight we will knowwhat he proposes to do.