India’s Import Bill Likely To Rise To $15 Billion On Increasing Edible Oil Import

It isn’t good news for policy makers. India’s import bill is expected to touch $15 billion in 2014-15 as against $9.3 billion in 2013-14. According to analysts, the steep rise in the import bill is likely to happen because of the 10% shortfall in oil seeds production, which has led to an increase in the import of edible oils by the country.

According to a study conducted by ASSOCHAM, the apex trade association of India, there will likely be a decline in the production of three major Kharif oil seeds such as sunflower, groundnut and soyabean by 35%, 31% and 1% respectively. Industry experts have attributed it to the El Nino effect that has resulted in a shortfall in the rains which has led to decline in domestic production of oil.

“As of now, India has imported more than half of its domestic edible oil requirements, said DS Rawat, general secretary of the chamber. Additionally, he said that the reason for the shortfall in the production of groundnut and sunflower oil is because of the volatility in their immediate price movements.

“Prices of edible oils since April 2014 reveal that there has been no perceivable build up in the retail prices of edible oils on the whole in India, however, we have noticed some fluctuations in the prices at the regional level,” added Rawat.

He also noted that the fact that both domestic and international markets are in sync with each other, has acted as a cushion against any price shocks in edible oils even though in India, the oilseeds and edible oil markets are not integrated. “However, dependence on imports have made India footing high import bill and invite volatility into the Indian market. Moreover, oilseeds and edible oil markets are not vertically integrated in India,” emphasised Rawat.

Apart from domestic demand of oil, which is one of the factor that determines the import of edible oil in the country, the prices are also governed by speculative trading positions as well as the credit period and payment cycle.

“The vulnerability of Indian edible oil market to international prices as well as supply chain imperfections can be seen from the stock-to-use ratios. The industry stocking norms of the seasonal crops indicate that about 20% of the production should be in the form of stocks to meet the ongoing demand until arrival of the next crop in the market. The stock-to-use ratios of the edible oils in India remained at less than half of the required levels indicating how much their prices are susceptible to volatility,” asserted Rawat.

It should be noted that, currently, India’s import of edible oils during April to August has already risen by 53.2% year-on-year basis. On top of it, the festive season has further pushed the import of edible oil during September and October.

The import bill on account of edible oils into India during April-August period in the current fiscal has already jumped by 53.2% on year-over-year basis and September-October bill has been on a much higher side due to festive season, says the study. Thus, in the current context imports have been helping the domestic market to ward off the adverse impact of short fall in the production of oil seeds in the Khariff season.

Besides, a shortfall in the production, industry experts have also attributed the increase in import to the country’s skewed trade policy, a twisted duty structure which attracts higher custom duties on oil seeds as well as restrictions on export of edible oils like groundnut oil.

Image: Indiatimes.com