Tuesday 11 March 2008

India May Cut Edible Oil Tax 10% as Record Prices Fan Inflation

India, the world's biggest buyer of vegetable oil after China, may cut import duties by more than 10 percent as record high global prices fan inflation, the country's largest importer said.

Taxes on palm oil and soybean oil could be reduced or state-owned trading companies may increase overseas purchases as the government struggles to rein in food prices before elections, Dinesh Shahra, managing director of Ruchi Soya Industries Ltd., said in an interview in Mumbai.

``A cut of 5 to 10 percent will make no difference to inflation,'' Shahra said. ``If they are serious about bringing prices lower, they have to do more than that.''

India reduced the levy on vegetable oils four times last year to the lowest since at least 2000, joining China, Malaysia and Thailand in safeguarding food supplies. Palm oil and soybean oil surged to records this month, complicating efforts by Prime Minister Manmohan Singh's government to curb prices of staple foods as India imports more than half its cooking oil needs.

``Inflation is a concern for the government and it is an election year,'' Shahra said.

Singh's Congress party lost ground in most state polls last year because of rising consumer prices. The government, which faces elections before May 2009, last month announced a $15 billion loan waiver for farmers to boost its electoral chances.

MMTC Ltd., a state-owned trading company, last week called bids to import as much as 40,000 tons of crude soybean oil and 6,000 tons of crude palm oil for April-May delivery. China's National Development and Reform Commission, the state planning agency, yesterday asked regional governments to boost sales from their vegetable oil reserves to curb food prices.

``Government-run agencies may import edible oils and supply it to refiners or distribute through ration shops, something that China is doing,' Shahra said.

Imports Rise

The government charges 40 percent import duty on crude palm oil, down from 60 percent at the beginning of last year. Tax on imports of crude soybean oil was lowered to 40 percent from 51 percent in 2007.

India may cut import duties on vegetable oils or boost imports through state-run agencies, T. Nanda Kumar, federal food secretary said in Dubai on Feb. 5.

Finance Minister Palaniappan Chidambaram had been expected to announce the duty cuts in his annual budget speech on Feb. 29, Shahra said.

``Since the budget had no announcement on that, the government could be expected to act as soon as possible,'' Shahra said.

Rising Purchases

India's cooking oil purchases may climb 15 percent to 5.4 million tons in the year to Oct. 31, according to a Bloomberg survey in January.

Imports in January climbed 46 percent from a year ago to 457,601 tons, a trade body said last month.

Palm oil futures in Malaysia, the global benchmark, rose as much as 5.6 percent to 3,870 ringgit today. The commodity touched a record 4,486 ringgit on March 4. Soybean oil, palm oil's main substitute, gained 1.7 percent to 63.2 cents a pound in Chicago, reaching a record 72.69 cents on March 4.

Palm oil may average 3,500 ringgit ($1,092) a ton for the remainder of the year, supported by rising consumption in India and China, the world's biggest buyers of vegetable oils, Ruchi's Shahra said. Prices averaged 2,463 ringgit last year.

``These are reasonable levels,'' he said.

Ruchi, which refines crude palm and soybean oils, is talking with the Indonesian government for acquiring land to develop oil palm plantations, he said. It scrapped plans to buy plantations in Malaysia and Indonesia because of high prices, Shahra said.

The Mumbai-based company plans to spend 2 billion rupees ($49 million) on developing as much as 50,000 hectares of oil palm plantations in the next five years, he said.