Is Palm Oil the Answer to India's Edible Oil Crisis?

Now this is getting too much. The chairman of the Commission for Costs & Prices (CACP) Dr Ashok Gulati has come out with another analysis which, if implemented, will take India from the frying pan into fire. That's what I feel. All through he has been shrieking at the top of his voice for cutting down on import duties on agricultural commodities. His argument has been that cheaper imports will make Indian farmers efficient, which in turn will improve crop productivity thereby increasing exports.

Nothing like that happened.

Writing in The Economic Times, he says in an oped article entitled: Oil palm: Answer to India's edible oil problem (ET. Jan 17, 2013. bit.ly/S5qtKS ) that India's edible oil import bill has crossed Rs 56,295-crore in the oil year, Nov 2011 to October 2012. "The projections of demand and supply of agri-products also shows that the biggest challenge of Indian agriculture will be in producing enough edible oils at globally competitive rates to meet its rising demand." Fair enough.

And then he very conveniently hides the fact that India had achieved near self-sufficiency in oilseeds production in 1993-94, many called it yellow revolution, after which the down slide began. From a near self-sufficiency status to becoming world's second biggest importer of edible oils is because it was after 1993-94 India had began to gradually reduce the import duties. As per WTO obligations, India is allowed to bound its import tariffs on edible oils at 300 per cent (except for soy oil where it has been pegged at 40 per cent, thanks to US pressure). But it was autonomous liberalisation that did the damage. At present, there is zero duty on crude edible oil and 7.5 per cent on refined edible oil. Now with import duties brought down to almost zero, what do you expect to happen?

Imports have been on an upswing. From Rs 14,709-crore in 2006-07, the import bill jumped to Rs 34,677-crore in 2009-10, and has further soared to Rs 56,295-crore in 2011-12.

You will agree that it is because of India's faulty policies that edible oils have turned into a big strain on the state exchequer. Obviously, the current account deficit will grow when imports increase and exports do not match. In fact, still worse, because we allowed cheaper edible oil to be imported, farmers abandoned cultivation of oilseed crops and shifted to other unremunerative crops (oilseeds are mainly grown in the harsh environs of drylands). At the same time, the domestic edible oil processing industry collapsed, in turn implying that it was a lost opportunity to create employment.

Just between 2006 and 2012, a period of six years, India has incurred Rs 2.02 lakh crore on edible oil imports. If India had continued with the oilseed self-sufficiency programme, as initiated by former Prime Minister Rajiv Gandhi, this entire amount would have remained within the country thereby helping farmers and the industry. Here also, people like Ashok Gulati were advising the successive governments on the dire need to open up imports. So first you the damage the country by encouraging imports, and then you try to inflict another bigger damage by campaigning for a crop which is known to be environmentally destructive.

While the Ministry of Agriculture is now contemplating a re-look at the import duties on edible oils (Govt to review import duty structure of edible oils. Business Line. Jan 15, 2013. bit.ly/SCVmrB ), Ashok Gulati is suggesting a shift to palm oil cultivation to meet the domestic demand. His suggestion is that India should bring 2 million hectares under palm cultivation in the next four to five years, for which he even advocates a compensation of Rs 4,000-crore to farmers as opportunity costs. CACP chairman doesn't want the wheat and paddy prices to be raised by even Rs 10/quintal but has no problem if the government was to shell out Rs 4,000-crore to farmers as compensation for palm oil cultivation!

Palm oil cultivation has a terrible socio-economic and environmental fallout (See this WWF report: Palm oil: Environmental impacts. http://wwf.panda.org/what_we_do/footprint/agriculture/palm_oil/environmental_impacts/) Knowing this, I don't think any sensible economist would advocate undertaking massive palm oil plantations, and on top of it provide huge subsidies to make it economically viable.

Meanwhile, the Government today has raised the import duty on crude edible oil from existing zero to 2.5 per cent. Ministry of Agriculture had proposed a hike of 7.5 per cent, which also is very low. To make any appreciable dent in the sense that India returns back to the path of self-sufficiency, the import duties should have been raised by 150 per cent. But then, that's not the intention of this government.