3/1/07 (Busienss Line ) New Delhi  -- After sugar, it is edible oil that is emerging as a potential conflict zone between the Finance Ministry and the Agriculture and Food Ministry.

Having extended the present 10 per cent import duty concession on palm oils for an indefinite period, the Finance Ministry is reportedly pushing for a further 10 per cent reduction.

The proposal was, in fact, discussed by the Committee of Secretaries even before the December 22 notification of the Central Board of Excise and Customs (CBEC), extending the validity of the current reduced basic customs duty rates — 70 per cent for crude palm oil (CPO) and 80 per cent for refined, bleached, deodorised (RBD) palmolein — "without an end date".

"The meeting (chaired by the Cabinet Secretary) not only decided on extending the current duty rates beyond December 31, but even looked at the possibility of a further 10 per cent duty cut in the light of spiralling international prices. A decision was not taken due to opposition from the Agriculture and Food Ministry officials," sources told Business Line.

The Agriculture Ministry, while sharing the Finance Ministry's concerns over inflation, is not convinced about the desirability of a duty cut, just when the standing mustard crop is due for harvest from the next month. Also, past experience shows that whenever duties were cut, global prices have tended to get upwardly adjusted, nullifying the impact of the measure.

Tariff values unchanged


Moreover, the Finance Ministry, it was pointed out at the meeting, has been keeping tariff values on edible oils unchanged as a means of neutralising the significant jump in international prices over the last one year. The tariff values represent the base prices on which the import duties are computed and are ruling way below the actual landed prices of edible oils.

At present, CPO is being imported at $602 per tonne (cost, insurance & freight, Mumbai), whereas the corresponding tariff value (on which duty is levied) is only $447 per tonne. The importer, in other words, is effectively shelling out a basic duty of only 52 per cent and not 70 per cent. Similarly, at the present landed price of $637 per tonne for RBD palmolein (against the tariff value of $484 per tonne), the 80 per cent customs duty is, in reality, 61 per cent.

The situation is no different for crude degummed soyabean oil, where the tariff value is $580 per tonne and landed price $728 per tonne. That makes the 45 per cent basic duty effectively 36 per cent. The Finance Ministry has kept tariff values on palm oils constant since July 31, while not altering it for crude soya oil after September 15.

"The Agriculture Ministry feels that the import duties have already been lowered by freezing the tariff values. Any further duty reduction will hurt Indian farmers just as the ban on sugar exports is ultimately bound to result in a build up of cane arrears," the sources added.