In recent events, the central government of India announced that they have reduced the Agricultural Infrastructure Development Cess (AIDC) for Crude Palm Oil (CPO) from 7.5% to 5%, effective from 12th February, 2022. Cess is essentially a special tax which is levied over the basic tax rates. The purpose of introducing AIDC is to raise funds to finance spending on developing agricultural infrastructure.
AIDC is proposed to be used to improve agricultural infrastructure aimed at enhancing production, conserving and processing farm output efficiently.
What is Palm Oil?
Palm oil holds the status of being the world’s most consumed vegetable oil. Its wide range of use cases include the production of detergents, plastics, cosmetics and biofuels. The top consumers of this commodity are India, China, and the European Union (EU).
How does the Reduced AIDC Impact Edible Oils?
The decision to reduce AIDC provides further relief to consumers and keeps in check any further rise in domestic edible oil prices due to the global increase in edible oil prices. Post the agri-cess reduction, the import tax difference between CPO and Refined Palm Oil has widened to 8.25%. This increase benefits the domestic refining industry as it can now import Crude Oil for refining.
Other Measures to Control Edible Oil Prices
To add to these efforts, the government has extended the current basic rate of zero percent import duty on Crude Palm Oil, Crude Soyabean oil, and Crude Sunflower Oil until 30th September, 2022. Additionally, stock limit quantities have also been imposed on edible oils and oilseeds until 30th June, 2022, under the Essential Commodities Act, 1955. This move aims to check hoarding, curbing unfair practices like black marketing of edible oils and oilseeds.
National Edible Oil Mission-Oil Palm (NMEO-OP) Scheme Introduction
In August 2021, the government announced the launch of the National Edible Oil Mission-Oil Palm (NMEO-OP) scheme. This is a massive shift towards self-reliance in edible oil, involving an investment of over Rs. 11,000 crores over a five-year period.
The Current Scenario of Edible Oils in India
The development of this sector owes its progress to two major aspects – the introduction of the Technology Mission on Oilseeds in 1986 which was transformed into a National Mission on Oilseeds and Oil Palm (NMOOP) in 2014, and then merged with NFSM (National Food Security Mission), and greater freedom given to the open market under the Government’s liberalization program.
Obstacles to Self-Sufficiency in Edible Oils Production
Despite these measures, the question of why India is not entirely self-sufficient in edible oils production still persists. Key challenges include micro-irrigation, quality seeds, marketing infrastructure, and government policies. The total domestic demand for edible oils is approximately 250 lakh metric tonnes annually. Around 60% of this requirement is met through imports. Among these, palm oils import constitutes around 60% of the total edible oil imported, most of which is from Indonesia and Malaysia.
Looking Ahead
In the current scenario, there isn’t a comprehensive strategy laid out for the production of oil seeds. Farmers largely base their cultivation on the market rates. As a result, when there is a surplus production, government imports oils and other products leading to a drop in prices. Therefore, a feasible solution would be the approval of GM (Genetically Modified) cultivation for oil seeds to increase production. This, coupled with a micro-level plan with technological support, could bridge the gap between production and demand. Most importantly, it’s high time India makes a decision on GM oilseed cultivation, an approach that has been adopted globally.
