21/2/06 ( Business Line)  -  HECTIC lobbying by the country's vegetable oil industry - refineries and vanaspati producers, to be precise - to obtain some relief from the assault of low-priced imports has taken many shapes and forms including representations to the Union Government and full-page advertisements in newspapers to draw the Finance Minister's attention.

Clearly, calculations and expectations of large refining units that have come up in the last three years to take advantage of tax breaks provided by the Union Government have gone awry.

Continued import of duty-free vanaspati from Sri Lanka and low-duty (30 per cent) material from Malaysia has unnerved the big boys. To be sure, consumers are not complaining.

The palm versus soya battle seems to have shifted to the Indian turf. Two identifiable groups - one, South-based units in favour of palm oil, and the other, West-based in favour of soya oil - have emerged.

One group perceives large-scale soya oil import (at 45 per cent Customs duty) as the villain distorting the market, and has sought imposition of restrictions on low-duty soya oil imports.

On crude palm oil, the rate of Customs duty is 80 per cent. Lobbying to narrow the duty differential between soya and palm oils is continuing.

Malaysia is livid that the Indian duty structure clearly favours soya oil and discriminates against palm oil.

However, the domestic edible oil lobby has opposed any move to reduce Customs duty on palm oil and has represented to the Government citing farmers' interests.

Reports that the Ministry of Finance is engaged in a serious exercise to re-impose excise duty on manufacture of refined oils (Business Line recommended the measure in December last) are doing the rounds of the industry.

Even here there is stark difference of opinion. Units in exempted areas such as Kutch (enjoying excise duty exemption as part of earthquake relief package) are keen that the fiscal levy is re-imposed. They are hoping to enjoy the fruits of exemption even as units elsewhere would be liable to pay.

Their forecasts and projections went topsy-turvy when the Finance Minister withdrew the fiscal impost in his last Budget as a result of which their competitive edge got blunted.

Investments in large refining facilities were made by existing and new players, including MNCs, primarily to benefit from duty exemption.

However, domestic refining units are opposed to levy of excise duty for the reason that exemption to Kandla units would completely distort the market.

Poor revenue collection in the past is also cited as a reason.

Without doubt, levy of excise duty, in addition to helping raise revenue, would bring a certain discipline in the marketplace.

However, it is absolutely necessary that all manufacturing units, irrespective of their location and status, are brought under the tax net. Exemption is not desirable, as it would skew the market in favour of big players at the cost of small refineries.

A strictly implemented excise duty regime can fetch easily up to Rs 600 crore as revenue, assuming duty of Rs 1,000 on a tonne on refined oil production of 60 lakh tonnes.

How the Finance Minister is going to stem the flow of low-priced imports remains to be seen. There is an unconfirmed report of Sri Lankan Government imposing some import duty (said to be 28 per cent) on crude palm oil imported into that country.

Meanwhile, over 15 lakh tonnes of rapeseed/mustard lying with National Agricultural Co-operative Marketing Federation of India (Nafed) and uncertainty over the manner of disposal has created anxiety in the market.

Additionally, there is the serious possibility of forced procurement of a further 25 lakh tonnes over the next two months, with the rabi harvest round the corner. The carrying costs and associated losses would surely run to Rs 1,000 crore and more.

In the past, Mr P. Chidambaram had made his priorities clear. In his scheme of things, consumers come first, next the growers, and the industry last. Whether he has changed his mind will be known in a week, when the Budget proposal is made.