India Tackles Covid-19 Fallout

The COVID-19 crisis has roiled the economy of India, like most other economies around the world. Figures of unemployment released as of April 2020, at 24%, paint a frightening picture. Besides fighting the challenges of the Covid-19 pandemic on the health of its people, the Government Of India  (GOI) has had to also focus on the long-term economic well-being.

The third phase of the lockdown has come to an end on 18th May. The success of the nation’s efforts to curb the virus has been taken into consideration to decide the way forward. Figures of cases coming out of the big cities and towns do not give confidence to see easing of curbs and a general advisory has been issued to the states to extend the lockdown until 31st May. Various states have taken selective approach to this, based on their individual circumstances. Some have extended the lockdown whereas others are implementing phased relaxation. The nation has been divided into three zones—Green, Orange and Red. The state of Maharashtra accounts for almost 35% of the cases in the country, leading to the extension of the lockdown in the major cities of Mumbai and Pune till the end of the month. The bigger cities are major consumers of vegetable oils, including palm oil. The extended lockdown is causing continuous distress to the industry.

The Prime Minister, in his address to the nation, has announced mega stimulus packages, stressing on the need of the nation to be self-reliant. Total packages announced amount to INR 20 Lac crores (approx. USD 260 Billion). This includes INR 1 Lac crore (USD 13 Billion) for the welfare of farmers in an effort to increase their revenue. Another INR 5,000 crore package (USD 650 Million), in the form of a special credit facility, has been earmarked for street vendors, including food vendors who are users of palm oil.  The PM emphasized that manufacturing products in the country, rather than depending on imports, should be the objective. This would also provide for increased employment. India has a huge captive market which can easily consume what it produces. The world looks at the Indian market size, so why should its own manufacturers not capitalize on this. This will be the road map for the future of the country.

The INR 20-lac crore stimulus package is 10% of the GDP of the country. Amongst the comity of nations, this was the fifth biggest economic stimuli administered in the world and there are expectations of more to come.

The INR One lakh crore agri stimulus package has been one of the talking points. Measures to strengthen agriculture, food processing sectors and capacity building are on the anvil. Details on administering it are in the offing. This will be closely watched for its effect on palm oil consumption. 

The Government of India made another bold announcement which is expected to have far reaching ramification in the days to come.

The Essential Commodities Act is to be amended to ensure cereals, edibles oils, pulses, onions, potatoes get deregulated. Amongst others, this will lead to releasing the industry from the shackles of limits on stock holding, which is considered to be a deterrent to trade. The current regulation was aimed at preventing industry level hoarding of goods to create artificial scarcity. This was causing major distortion in the markets and also working against the farmers’ interest. This was an archaic regulation.  Commodities are now more aligned with international markets and prices linked to it. Trying to shackle it at the local level was proving to be counter-productive. The prevailing stock limit for dealers of domestic vegetable oils, whenever such controls were exercised, was 30 MT. This deregulation has been a demand of the industry for long and the GOI seems to be reacting pro-actively. The present move will not have any impact on imports as the stock limit was not applicable on imported vegetable oils.

Another development that has taken place because of the current challenges faced by the industry is the tightening of imports of RBD palm products. The industry is quite pleased with the pro-active move by GOI. Post the removal of RBD products from the free import list in January 2020, the industry had heaved a sigh of relief; but, this was soon negated by the indiscriminate issuance of import licenses for RBD imports, both from SAFTA countries as well as from Indonesia. It was alleged that the SAFTA countries were pumping in refined palm oil into India. They were taking advantage of the zero-duty structure under SAFTA Treaty. Based on complaints by affected parties, the government suspended 39 such licenses. This will see cessation of refined oil coming from Nepal, Bangladesh and other countries. This is likely to increase imports of CPO directly by India.

The prevailing mood in the country is somber. Sentiments continue to be bearish, mirroring the progress of the lockdown. It is expected that the easing of lockdown could see a rush for vegetable oils. This year has seen more sunflower and soya oil being imported into the country at the expense of palm oil, in light of shift in demand from HORECA sector to direct home consumption sector.  Relaxation of the lockdown in the rural and other less affected areas is in the offing. When this happens, consumption is expected to rise.  The industry waits for this to happen, with bated breath.

Tariff Values were revised. On CPO to 546 USD from 605, OLN to 564 from 638, CDSBO to 636 from 656, vide Notification dt. 15.05.20. Effective duty on CPO Rs.17274.76 (-1866.69), OLN Rs.21413.11 (-2809.52) CDSBO Rs.18780.76 (-590.59) per MT. Although CPO still has a 5% import duty disadvantage, this revision will provide some relief.

The fluid state of affairs with regard to vegetable oils and particularly palm oil, is expected to continue in the near future. The industry hopes near normalcy returns in a couple of months, just before the slew of festivals arrive.

Prepared by Bhavna Shah

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