At India’s Trade Policy Review meeting and WTO meetings, several commodity exporting countries had raised concerns over India’s agriculture trade policies.
Among them, oil seeds is an important commodity; here is a look at the trade-related aspects of it.
What are the concerns raised?
Agricultural commodities in question include pulses and vegetable oils that India imports in sizeable quantities.
The US and the EU flag certain trade-related issues including increase in import duties.
They also raise certain questions about India’s agricultural support programmes such as the minimum support price for various crops.
At the recent WTO Committee on Agriculture meeting, member-countries questioned India on various issues including -
continued restrictions on pulses import
wheat stockpiling
short-term crop loans
export subsidies for skimmed milk powder
export ban on onions
The latest attack is on India’s ambitious plan to step up domestic oilseeds output so as to reduce dependence on vegetable oil imports.
[It costs roughly $10 billion (about ₹75,000 crore) in foreign exchange annually for bringing in 13-14 million tonnes of palm, soybean and sunflower oils.]
WTO member-countries are questioning India mainly regarding incentives to oilseed growers to boost output.
What is to be noted here?
One, other countries have no business to question, so long as the incentives are well within the permissible limits.
Second, there are ways India can boost domestic oilseeds output even without direct financial incentives or monetary support to growers.
What is the flaw with vegetable oil imports policy?
Raising the Customs duty on vegetable oil imports has hardly had any positive impact on domestic oilseeds production in the last 25 years.
Notably, more often, vegetable oil imports are excessive and speculatively driven.
As a result, building large inventory of low-priced imported oils depresses domestic oilseeds prices.
It consequently discourages oilseed growers.
This has been going on for two decades and must be stopped.
What does this call for?
Instead of the tariff route, India should look at the trade policy.
The system of contract registration and monitoring of imports present for steel and copper should be extended to vegetable oils.
The government must mandate that all vegetable oil import contracts must be registered with a designated authority.
Contract details will include quantity contracted for, type of oil, origin, price and expected arrival time.
This information should become the basis for intervention, if any, needed.
Should importers’ credit period be cut?
Now, overseas suppliers grant 90 to 150 days credit to Indian importers.
But the cargo reaches Indian shores in about 10 days (palm oil) or 30 days (soft oils).
So, the Indian importer sells the material immediately and enjoys liquidity for several months.
During this period, the importers indulge in rampant speculation and over-trading before they are required to remit payment.
This is leading to a never-ending import cycle.
Many veg-oil importers are actually in an ‘import debt-trap’.
To prevent this, the credit period enjoyed by veg-oil importers should be restricted to a maximum of 30 days for palm oil and 45 days for soft oils.
This will automatically discourage excessive imports, over-trading and speculation.
What is the way forward?
India’s oilseed production has got trapped at 31-32 million tonnes.
It is essential to break this stagnation and aim to increase the output by at least 2 million tonnes a year, if not more.
Import contract registration, strict monitoring of import and restricted credit period will infuse a much needed discipline in the import trade.
Reducing speculative and excessive imports of vegetable oil will immediately have a positive effect on domestic oilseed prices and encourage growers.
Surely, achieving Atmanirbhar or self-sufficiency is a challenge. But India can become substantially self-reliant over the next 5 years or so.
