INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

FINMIN CUTS IMPORT DUTY ON PALM OIL TO CONTAIN PRICES

As part of government's efforts to keep prices from spiralling out of control, the finance ministry on Friday cut import duty on crude palm oil from 80% to 70%.“The step has been taken to cushion the impact of increase in international prices of edible oils. International prices of palm oil are firming up and the landed costs of the commodity is also expected to go up.

“This has been done to keep the prices in the country under check,” Gautam Ray, joint secretary, department of revenue in the ministry said. Speaking in Parliment a few days ago, finance minister P Chidambaram had said the government would take more steps to keep prices of essential commodities under check. Today's move is seen to be part of the steps being taken by the government in that direction. Within the last couple of months the government has slashed import duty on wheat to 5% and exempted customs duty on sugar and pulses, while RBI has raised repo rates to arrest rise in speculation in real estate. In fact, in case of wheat, State Trading Corporation has been allowed to undertake 3.4 million tonnes import at 0% duty. Under Friday's orders, customs duty on Refined Bleached Deodorised palm oil has also been reduced from 90% to 80%. The duty cuts come into effect from today.

Ray said the duty cut would cost the exchequer Rs 650 crore. But it would not hurt the realisation of budget estimates, as the government had earned up to Rs 600 crore more, when the duty rate was higher, since the landed price of the commodity was also higher. Today's reduction in customs duty will reduce the landed cost of these oils, though they would still be higher than the cost prevailing in the first week of February 2006. The international prices of palm oils have been rising during the current financial year, which has resulted in increase in domestic prices of edible oils. For instance, tariff value of crude palm oil, on the basis of which import duty is charged, has gone up from $417 per metric tonne in the first week of February 2006 to $447 PMT in August 2006.