To meet the widening domestic supply shortfall, India imports annually 15-16 million tonnes of various oils (palm, soy, sun) valued at $ 17-18 Billion. At the same time, domestic oilseed growers face weak prices, lower than even the minimum support price. This situation is both anomalous and tragic. It demands a remedy with appropriate fiscal and trade policies.

Strangely, with effect from June 1, 2025, the government reduced the basic customs duty on various crude vegetable oils (palm, soy, sun) from 20% to 10%. The Finance Ministry sought to justify the duty reduction by stating in the Lok Sabha “the objective behind the reduction of customs duty on crude edible oils is not to undermine domestic cultivation but rather to create a balanced environment where domestic refining is enhanced, consumer prices are reduced and farmers continue to receive fair compensation for their produce”.

Additionally, the government asserted that the duty reduction was aimed at higher utilization of domestic refineries and promoting local edible oil refining industry. 

In the premise, the justification is flawed. There is no empirical evidence that the objectives have been achieved. Policy priority is to support domestic consumers and oilseed growers. It is no part of government’s job to ensure higher capacity utilization in the refining industry. 

Actually, the refiners must be encouraged to buy more and more of domestically grown oilseeds, have them crushed and refine the oil for capacity utilization. Cutting import duty on crude oil was a facile option involving huge revenue sacrifice.  

Lowering of import duty has resulted in higher import of the semi-finished product (crude vegoil) while the country’s primary producers - oilseed growers – have suffered weak prices and poor market opportunity. Interestingly, large corporates with long arms to reach the powers that be are engaged in vegetable oil import trade. 

In the interest of higher revenue, Rupee stabilization and protecting oilseed growers, the Finance Minister must hike the basic customs duty on crude vegetable oils and restore status quo ante. Initiating a system of close monitoring and regulation of import is necessary.