India Scraps 20% Import Duty on Crude Soybean Oil (Update1)

March 19 (Bloomberg) -- India, the world’s biggest buyer of vegetable oils after China, scrapped a 20 percent tax on imports of crude soybean oil to the bring duties on the commodity on par with palm oil, its main substitute.

Trade Secretary G.K. Pillai made the announcement in New Delhi today. The duty was first imposed in November to shield oilseed growers from purchases made at zero duty. No duty was levied on crude palm oil, making its purchases more attractive.

Ending the duty may boost India’s purchases from Argentina and Brazil, the biggest suppliers, helping stem a 44 percent drop in soybean oil prices in Chicago. Duty-free purchases of soybean oil may also reduce India’s dependence on imports of palm oil from Malaysia and Indonesia.

“Duty abolition will pave the way for a further influx of cheaper edible oils,” and lower palm oil purchases, Davish Jain, chairman of the Central Organisation for Oil Industry, said by phone from Indore in central India.

Palm oil futures for June delivery were little changed at 1,906 ringgit ($521) a ton in Kuala Lumpur after rising as much as 2.1 percent earlier to 1,945 ringgit. Soybean oil for May delivery climbed as much as 2.9 percent to 31.80 cents a pound in after-hours trading on the Chicago Board of Trade.

Vegetable-oil imports by the South Asian country surged 68 percent to 2.95 million tons in the four months ended February from a year earlier, the Solvent Extractors’ Association of India said this week. Soybean oil imports totaled 281,349 tons in the period, up from 172,884 tons a year ago, while palm oil imports were 2.33 million tons, 83 percent of the total, the group said.

‘Deflationary Situation’

The country depends on imports to meet almost half its edible-oil demand. Still, scrapping the import tax on soybean wasn’t necessary as prices of the commodity have declined amid the global recession, Jain said.

“I fail to see any logic behind this proposal as edible oil prices are down and India’s economy is close to a deflationary situation,” he said.

India’s inflation slowed to a two-decade low of 0.44 percent in the week to March 7 from a 16-year high in August.

Duty-free imports may hurt farmers who have begun harvesting a bumper canola crop, said B.V. Mehta, executive director at the extractors’ group.

“Importers are bound to switch from sunflower as it will be cheaper without the duty,” he said. “Farmers will be hit hard because of cheap imports.”