8/1/06 Mumbai , (Business Line) -  THE country's burgeoning vegetable oil industry is in a fix with none in the Government willing to lend a sympathetic ear to their genuine woes. Vanaspati and refined oil manufacturers are at a complete loss to understand the mysterious complexities of the Government policy relating especially to duties and tariffs.

Inverted duty structure, non-transparent tariff value changes, huge differential in rates of customs duty between similar and competing oils, and too many categories of oils with as many duty rates and tariff values confuse even canny traders in this sector.

Vegetable oil policy, if there is one, is obviously in a mess. What else can explain the continuing anomaly that allows vanaspati (hydrogenated vegetable oil, a finished product) import at a low rate of 30 per cent customs duty, while its popular raw material crude palm oil bears a high rate of 80 per cent.

Compounding the problem is duty-free import from Sri Lanka. Vanaspati imported from the southern neighbour is considerably cheaper than what is produced indigenously because the imported product is not burdened with heavy fiscal imposts unlike the local one.

The domestic industry has been facing tough times with unfair competition from low-priced imports (first from Nepal and now from Sri Lanka) as also liquid oils. No wonder, sickness is pervasive!

There is considerable anguish within the industry even as leaders lament that dozens of representations made to all and sundry in the Government have evoked little response so far. The inverted duty structure is threatening to deal a deathblow to the domestic vanaspati industry.

The latest development that deepens the crisis is the import of vanaspati in bulk from Malaysia. There is apprehension this could open the floodgates to a large-scale import of Malaysian refined palm oil in another form. It is suspected that the bulk consignment was topped with sesame oil, which in the domestic market is used as a tracer.

The domestic industry wants the import policy and duty structure revisited.

The least the Government can do is raise the customs duty on vanaspati to 90 per cent ad valorem, equivalent to the duty on imported refined oil. Vanaspati is nothing but refined hydrogenated vegetable oil. The existing duty structure discriminates against vanaspati, as different rates of duty are charged to similar or competing products when there is no need to treat them differently.

In addition, quantitative restriction (QR) on imports from Sri Lanka must be imposed. It is obvious that when the Indo-Sri Lanka Trade Treaty was negotiated and finalised, the Government did not anticipate that the island nation would produce vanaspati even though it does not produce the raw materials indigenously. The Government must correct the oversight or faux pas by imposing QR, insisting on proof of value-addition and tightening the rules of origin.

Tariff value changes are another area of concern. The Government rightly decided more than three years ago to impose tariff value for imported vegetable oils in order to prevent invoice manipulation by importers. Tariff value must, by its nature, reflect market conditions. Often, the rates specified by the Government are far removed from market realities.

It is necessary for the Finance Ministry to make the process of tariff value revision transparent. Why the revision in base price should be shrouded in mystery and encourage wild speculation in the marketplace is anybody's guess. Let the Government spell out clearly the set of criteria or factors that go into the making of tariff value or base price.

Often, traders in Singapore and Kuala Lumpur get to know of tariff value changes (even movement of file) ahead of players in the domestic market and even before the notification is hosted on the official Web site. This is dangerous and deserves to be investigated.

Rapeseed stock with NAFED: Another area of uncertainty, lack of transparency, wasteful expenditure and potentially distortionary activity is the price support operation of the State agency, National Agricultural Cooperative Marketing Federation of India (NAFED).

Currently, NAFED is said to hold nearly 18 lakh tonnes of rapeseed/mustard procured in April/May 2005 at the minimum support price of Rs 17,000 a tonne.

At an average carrying charge of Rs 150 a tonne a month, the cost per tonne of rapeseed/mustard with NAFED has already exceeded Rs 18,000. This inventory overhang is a clear burden on the exchequer. All the losses arising out of the price support operation and disposal of stocks would be to Government account. A decision on stock disposal should have been taken long ago. The delay has cost heavily.

Attempts to export are most unlikely to succeed as the world market price is a third lower. One logical way out at present is that the stocks can be crushed and the resultant oil can be supplied through the public distribution system in regions where mustard oil is preferred.

These serious issues have large financial implication for the economy.

Prognostication of decision can further complicate the issue as is evident from the tardy handling of procured oilseeds. The government must come clean on these issues and make its stand clear. Uncertainties lead to speculation and distort normal market operation.