30th January – Curbing palm oil imports from Malaysia

India has recently curbed palm oil import from Malaysia due to Malaysian Prime Minister’s criticism of India’s internal policy decisions such as the revocation of special status for Jammu and Kashmir and the new citizenship Act. Malaysia is also sheltering the Islamic preacher Zakir Naik since 2017 who is wanted by India on charges of money laundering, hate speech, and links to terror.

Has India banned the import of Malaysian palm oil because of political reasons?

  • NO. India has cut import duty on crude palm oil (CPO) and refined, bleached and deodorised (RBD) palm oil, and also moved RBD oil from the “free” to the “restricted” list of imports.
  • The import of RBD palm oil has been restricted, not banned — and this is from all countries, not just Malaysia. Also, CPO can still be imported freely.
  • Under the trade classification system that India follows, except for goods that can be imported only by state trading enterprises (such as Food Corporation of India), all goods whose import is not restricted or prohibited are traded freely.
  • Normally, a special licence is required to import a restricted good. The government has neither specified what the restrictions entail nor issued any licences. However, it has been reported that vessels carrying RBD palm oil are stuck at several ports because buyers have been asked to shun the product.

How much palm oil does India import?

India imported 64.15 lakh metric tonnes (MT) of CPO and 23.9 lakh MT of RBD in 2018-19, the bulk of which was from Indonesia.

Why does India need so much palm oil?

  • It is the cheapest edible oil available naturally. Its inert taste makes it suitable for use in foods ranging from baked goods to fried snacks.
  • It stays relatively stable at high temperatures, and is therefore suitable for reuse and deep frying. It is the main ingredient in vanaspati (hydrogenated vegetable oil).
  • However, palm oil is not used in Indian homes. That, and the fact that CPO continues to be imported, makes it unlikely that the decision to restrict refined palm oil imports will impact food inflation immediately.

Effects on Malaysia –

India and Malaysia signed a free trade agreement — Malaysia-India Comprehensive Economic Cooperation Agreement — in February 2011. Under the agreement, India was required to reduce import duty on CPO to 37.5% (from 40%) by December 2019, and on RBD to 45% (from 54%) by December 31, 2018. In 2018, Malaysia exported 25.8% of its palm oil to India. If India does not issue licenses for importing refined oil, Malaysia will have to find new buyers for its product.

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