Don’t swing between ban and incentives

GoI’s policy moves to fight food inflation are muddled. After banning wheat exports, it has now imposed curbs on exports of sugar effective from June 1 and allowed duty-free import of 20 lakh tonnes of crude soyabean oil and crude sunflower oil a year. Any curbs or ban on the export of agri commodities ignores the need for the farmer to get better terms and trade, while making India an unreliable supplier. The curbs on sugar exports come in a year India is reportedly set to register its highest-ever exports, while the closing stock of sugar at the end of the sugar season (September 30) remains for three months for domestic use. With export contracts already inked, the restrictions on sugar exports are a dampener for trade. Last week, GoI advanced the target of 20% ethanol-blended petrol by five years, aiding the sugar industry. But policy uncertainty on farm trade, swinging between bans and incentives, is avoidable.

Scrapping the customs duty and agriculture infrastructure development cess on the import of crude soyabean oil and crude sunflower oil (2022-23 and 2023-24) is rational. Palm oil imports make for over half the total imports in the vegetable oil segment. With Indonesia lifting the ban on exports, India lowering the effective import duty (of 5.5%) merits consideration to help control cooking oil prices and support domestic processing companies. External price and supply shocks have pushed wholesale price inflation to a record high of 15.08% in April across all items. Retail inflation rose to 7.79%, remaining above the RBI’s inflation target.

GoI rightly responded by cutting the excise duty on petrol and diesel. It also lowered the customs duty for raw materials of plastics and steel. Ideally, import duties must be lowered across the board to ensure that lines of value addition have the same level of protection. One line of production will not be privileged over the other if import duty is low and uniform, say, at 5%, on raw materials, intermediates and inputs. This will also help lower prices for the consumer.

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