The year 2020 was a roller coaster year vis-a-vis Malaysian palm oil imports. The centuries-old relationship between India and Malaysia was tested when Malaysia’s former Prime Minister Mahathir’s comments on the Kashmir issue and the new citizenship law did not go down well in India. Although there was no official policy, public and trade sentiments affected imports of palm oil from Malaysia.
Pursuant to the ASEAN FTA, import duty on CPO was reduced from 40% to 37.5% from 2st Jan 2020. Further changes were made in the national budget on 1st February, 2020 but with the ASEAN FTA and MICECA in place, the final duty position was as below:
Under normal import regulation: CPO 44%; RBD 54%
Under ASEAN FTA: CPO 37.50%; RBD 45%
Under MICECA: CPO 37.5%; RBD 50% (including safeguard duty of 5% on RBD, which was subsequently lapsed in March 2020)
On 8th January 2020, the Directorate General of Foreign Trade (DGFT), India, issued a notification amending the import policy for Refined Palm Oil from “free to restricted.” This led to more stifling of imports of palm oil. In a bid to wean away from imports, India announced ambitions to boost domestic oilseed production.
The spreading tentacles of the COVID-19 virus was to take the hue of a pandemic. As cases started multiplying, an experimental one day’s national lockdown was imposed on 22nd March 2020. Some days later, from 25th March, the country was put on a nationwide lockdown, first for three weeks, then more weeks and months.
The pandemic-enforced lockdown had a cascading effect on almost all businesses. The food and HORECA sector took the brunt of the slump. The HORECA sector, a massive consumer of palm oil saw its off-take slow down to a trickle for months in a row. The international price rally in soft oils and palm oil had a significant effect on the palm oil industry. Locked down at home due to the pandemic enforced restrictions, domestic consumption of soft oil increased. Soft oil was the preferred cooking medium for households. A combination of all these factors resulted in palm oil imports being badly affected. From May 2020, India resumed its off-take from Malaysian sources. At this time the stock of edible oils in the country was deficient. The price advantage offered by Malaysia was also a plus point in increasing of imports from this country.
The lockdown took a massive toll on the economy. The economically lower sections of society were badly affected. Having slowed the virus’s unbridled march, the nation slowly eased back with partial unlocking in Unlock 1.0. The gradual crawling back of the economic activity saw a rise in the demand from food and the HORECA sector.
The rain Gods were kind. The monsoon arrived in time and spread out evenly in the country. This accelerated sowing. It is expected this would have resulted in the best yields in the last three years for major crops like rice, sugarcane and soya beans. Production of groundnuts has also seen a substantial increase, but it is with mustard that the most significant increase in production is expected. Domestic edible oil production is estimated to increase by 1-1.5 million MT. The increased local production coupled with subdued demand should help the country cut back on edible oil imports.
On 17th September 2020, three farm bills were passed in the Parliament. This was expected to usher in a new era in agriculture in India with the dismantling of some archaic rules and empowering of the farming community. The bills proposed to give the farmer the right to sell outside their APMCs and anywhere in the country. The intention was to empower farmers and afford protection for contract farmers. The Essential Commodities Act also got tweaked. These far-reaching consequences-laden bills ran into trouble due to protests from in some parts of the country.
India is blessed with a diverse culture and heritage with people of all major religions living here. Festivals bring the country alive. Most of India’s festivals are boisterous outdoor celebration events. But with the shadow of the pandemic hovering, the Union Health ministry laid down protocols to allow celebrations but with safety measures. The emphasis was to ask people to keep the celebrations low-key and within the family sans the need to step out of houses. Consumption of savouries is a significant highlight of the celebrations at festivities. This leads to massive consumption of edible oil. The inflation in international prices resulted in edible oil prices increasing by over 30% compared to the previous year. This price rise and restrictive protocols dampened the festive spirit.
The government has reduced the import duty on Crude Palm oil from 37.50% to 27.50% with effect from November 2020. RBD Olein duty was retained at 45% and RBD Palm Oil at 54%.
With countries veering toward protectionism and looking at protecting their national interest first, Prime Minister Narendra Modi has given a clarion call for “Aatma Nirbhar Bharat” (Self Reliant India). The intention is to promote local agriculture and industries and become self-sufficient. On the edible oil front, the government has come out with a strong set of forward-looking guidelines, which should help India become less dependent on imports and become self-reliant in the long run.
The arrival of the vaccine to combat the virus in 2021and the government’s vaccination efforts were expected to allay fears and fast-track the economy during the year. Ambitious projections were made for the economic recovery in 2021-22. In the early part of 2021 this optimism was justified and there was reason for hope. Though a sharp spurt in new COVID-19 cases is a cause of concern, it was hoped that this was just a blip and the country was not in danger of a second wave. But alas! All hopes have been bellied and the 2nd wave has struck the country with a vengeance. The infection rates have risen sharply and within 7 days new infections crossed 1.5 million. The health infrastructure has been challenged as never before. New Delhi and Maharashtra have led the way in new lockdown measures and several other states are set to follow.
What impact this will have on the economy and lives of the people is difficult to project at this early stage. But it is certain to set the country back. Demand for all consumables, including vegetable oils and products made therefrom, is bound to suffer. The last Rabi crop has been touted to be a bumper crop for oilseeds, though there are some concerns that it may not be as big as earlier expected. Both Indian Meteorological Department and SKYMET meteorological agencies are forecasting normal to better rainfall for 2021. This has led to optimism about the 2021 Kharif crop as well. All these factors put together do not hold out much promise for a significant increase in imports but its too early to say. The vaccination drive and the 2nd wave are moving forward together and one can only hope for that the impact of the former will overshadow the impact of the latter.
Prepared by: Bhavna Shah
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