Palm Oil Imports Restrictions and India

The Issue:

India has cut import duty on crude palm oil (CPO) and refined, bleached and deodorised (RBD) palm oil, and also moved RBD oil from the “free” to the “restricted” list of imports to protect the domestic refining industry.This move has been seen as targeting the Malaysia Pal Oil imports due to Malaysian PM criticising India’s internal policy decisions.

Restricted Goods

Under the trade classification system that India follows, except for goods that can be imported only by state trading enterprises (such as Food Corporation of India), all goods whose import is not restricted or prohibited are traded freely.

Normally, a special licence is required to import a restricted good.

India’s need for Palm Oil:

• It is the cheapest edible oil available naturally.
• Its inert taste makes it suitable for use in foods ranging from baked goods to fried snacks.
• It stays relatively stable at high temperatures, and is therefore suitable for reuse and deep frying.
• It is the main ingredient in vanaspati (hydrogenated vegetable oil).

Who will be impacted by the decision?

• Indonesia and Malaysia together produce 85% of the world’s palm oil, and India is among the biggest buyers.

• India has been Malaysia’s largest market for palm oil exports in recent years and the country purchased 4 million tonnes in 2019, of which about half was refined palmolein.

• Both Indonesia and Malaysia produce refined palm oil; however, Malaysia’s refining capacity equals its production capacity — this is why Malaysia is keen on exporting refined oil.
• Nepal, which, too, exports refined palm oil to India, has also been hit by the restriction

Consequences for India:

• There are costs to transporting the crude, which makes it more cost-effective to import the refined oil.
• The refining industry has been demanding that the import duty on refined oil be increased, which would make importing crude oil cheaper than importing refined oil. The decision to restrict imports of refined oil will benefit refiners, which include big-ticket names like the Adani Wilmar group.
• Palm oil is not used in Indian homes. That, and the fact that CPO continues to be imported, makes it unlikely that the decision to restrict refined palm oil imports will impact food inflation immediately.But if corrective measures are not taken, it may cause a rise in food prices.
• Restricting refined oil imports will not help farmers directly, as they are not involved in the process of refining. However, the restrictions have caused refined palm oil prices to increase. If prices continue to hold, farmers will get a better realisation for their crop.

• Relations with Malaysia:The development has highlighted one of a series of complicating factors in relations between the two Asian states.