India’s Strategic Move: Extended Lower Import Duty on Edible Oils and Curbing Molasses Exports

India’s Strategic Move: Extended Lower Import Duty on Edible Oils and Curbing Molasses Exports

On January 16, 2024, the Indian government made a crucial announcement, extending the lower import duty on edible oil until March 2025. The original lower import duty structure on crude palm oil, sunflower oil, and soy oil was initially set to expire in March 2024.

India, a significant consumer of palm oil, primarily sources it from Indonesia, Malaysia, and Thailand. In 2022, approximately 43% of India’s palm oil came from Indonesia, 25% from Malaysia, and a smaller quantity of crude soft oil, including soybean, from Argentina. Sunflower oil, another essential component in India’s edible oil market, is mainly imported from Ukraine and Russia.

This decision by the government aligns with the country’s economic context, especially after retail inflation surged to a four-month high of 5.69% in December 2023. The inflation was driven by elevated prices of various food items, including pulses, certain vegetables, and cereals. India witnessed a spike in palm oil imports to a four-month high in December, primarily due to increased purchases of refined palmolein owing to competitive prices.

Notably, in June of the previous year, the government had reduced the basic import duty on refined soybean and sunflower oil from 17.5% to 12.5%. The basic import duty plays a pivotal role in determining the landed cost of edible oils, thereby influencing domestic prices.

In addition to the extension of the lower import duty, the government also implemented a 50% duty on molasses exports, a by-product of sugarcane crucial for alcohol production, effective from January 18. This decision, communicated through a finance ministry notification, indicates the government’s strategic move to curb exports and ensure an adequate domestic supply chain.

Trade sources reported that during the 2022-23 sugar season (October to September), Maharashtra exported around 0.45 million tonnes of molasses, with Karnataka contributing 0.175 million tonnes and Gujarat 0.13 million tonnes. The total molasses exports from India in that season reached around 0.775 million tonnes. Notably, the exported molasses go to countries like Vietnam, South Korea, the Netherlands, and the Philippines.

The rationale behind this move lies in the need to redirect molasses back into the domestic supply chain, particularly considering the challenges posed to ethanol production due to low sugar production. To address this, the government initially halted ethanol production from sugarcane juice and has now decided to impose a significant 50% duty on molasses exports. Ethanol production in India is derived from various sources, predominantly sugarcane or grain-based molasses.

It’s worth noting that the government has maintained export bans on key commodities like wheat, rice, onion, and sugar. Despite calls to ease these bans, the government, as of now, has no plans to do so, emphasizing the importance of keeping prices under control in the domestic market. This strategic approach indicates a careful balancing act to safeguard domestic interests while navigating the complexities of global trade and economic dynamics.

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