Edible Oil Becoming Costlier – Bane or Boon?

Edible oil prices have steeply risen since May and are showing no signs of coming down. The main edible oils used throughout India are palm oil and soybean oil. Palm oil is imported from Malaysia and Indonesia, while soybean oil comes mainly from Brazil, Argentina and the US. India relies on more than 60% on the imports of edible oils, and any price hike in the global market is bound to hike its price in the Indian market.

Contrary to our belief, India is far from being self-reliant in edible oil. India is a massive consumer of refined oil, and domestic production is insufficient to meet such high demands. Being a populated country, she has less scope for enormous oil palm plantations than Indonesia and Malaysia. The output in these two global exporters of palm oil has decreased of late. The covid-19 pandemic has resulted in significant emigration of foreign workers to their respective countries, lowering the available labour and thus reducing production.

A similar story goes to a lesser extent for Brazil and the US regarding soybean oil production, with one added point that dry weather in Argentina reduced soybean production. Ukraine and Russia account for most of the sunflower oil imports, which too have gone down due to drought-like conditions. Moreover, the rise of biofuels across the globe demand use of edible oil for energy production instead of consumption. All these together account for the steep increase in prices of all refined oils – palm oil, soybean oil, rice bran oil, and sunflower oil. Prices have increased from a mere 110 rupees to 160-180 rupees a litre.

Cold-Pressed Oils that retains odour, flavour, and texture (colour)

But it is not in every field of edible oil production that India is lacking. In mustard oil, India holds one of the top spots and can also export that to other countries should a need arise. However, like other edible oils, the price of mustard oil has gone up way more than it ever has been. Mustard oil hovered around 130-140 rupees a litre just two months back. It has now increased to 180-200. The production of mustard oil hasn’t decreased. However, it seems to follow the global trend of oil price hike.

India has a long history of oil consumption, with many historians pointing out that the earliest production of oil began in India during the Indus Valley Civilization. Sesame seeds were pressed to extract oil from them using a presser, locally called ghani. In the modern world, sesame oil seems to have been overshadowed by the heavy use of refined oils. It is only in Rajasthan, where it was used historically. In South Indian states of Andhra Pradesh, Tamil Nadu, Karnataka, and Telangana use substantial amounts of sesame oil in local cuisine. Sesame oil is quite expensive in India due to cold-pressed extraction techniques, also called kachhi-ghani, but is much more healthy than refined oils. Thus, a hike in refined oil prices may benefit sesame oil production and consumption in the long run.

Oil Ghani Machine for extracting oil

Cold-pressed oils such as groundnut oil and coconut oil have been used in many dishes of western India and Kerala, respectively, mainly for their retention of flavour, odour, and texture (colour). Groundnut oil, in particular, along with cottonseed oil, has faced a surge in price due to low productivity and crop damage this year. Among the introduced crops, cold-pressed sunflower oil and cold-pressed safflower oil shows promising future, as they are both neutral in taste but much more healthy. Olive plantation has picked up pace in Rajasthan, and the olive oil price has considerably decreased in recent times.

A hike in edible oil prices is very challenging for middle and lower-class families, constituting the bulk of the population in India. This comes at a time when the country is reeling under severe Covid-19 crisis, where a chunk of the population are facing economic stress, and many have lost their job. So in the short term, it is no doubt that the hike in edible oil prices is a disaster for most Indians. However, in the long term, the promotion of indigenous and traditional oil extraction methods by cold-pressed methods from indigenous oilseeds may make a chunk of the population switch to healthier alternatives without compromising much on the cost.

Written by – Himadri Paul

Why Are Prices of Diesel and Petrol not Decreasing, when Crude -Oil prices are falling drastically?

On June 8th, India prepared to lift the lockdown imposed on its citizens due to the Coronavirus.

Around this time, Oil companies controlled by Union Government started hiking both petrol and diesel prices. From June 7th, fuel prices were hiked consecutively for 22 days.

In Delhi, the price of petrol was increased by 13%, and the price of diesel was increased by 16%, – during this period alone.

Fuel prices were hiked to such extent that in some states diesel was costlier than petrol since each state in India has different fuel prices (state-specific taxes).

The peculiar thing about this price hike was that even though Crude Oil prices fell drastically from $71 per barrel at the beginning of Financial year 2019-’20, to $39.89 as of June 2020, a price drop of more than 42%.

Falling Crude Oil prices, theoretically speaking, should be beneficial for the public as it should mean a decrease in fuel prices. But in practice, consumers rarely get these benefits.

According to The Scroll, “The Indian crude basket is an index consisting of different crude grades according to which – in theory – retail price of petrol and diesel is supposed to be benchmarked. In practice, however, this benchmarking only works if crude prices are going up.”

A perfect example would be recent fuel price hikes in our nation.

But what was the reason behind this immediate hike?

In April the price of Indian basket of Crude Oil went below $20 per barrel. But since then the price of oil has risen. It averaged around $30 per barrel in May, and on June 28th it stood at $40.83.

So, the price of Crude oil has almost doubled, as lockdown is eased and International demand for Crude has picked pace.

But this is not the sole reason for the hike. The other reason would be taxes.

The excise duty on Petrol and Diesel was hiked by the Union government by a record Rs.10 per litre and Rs.13 per litre respectively, in the month of May.

Meanwhile, 13 states announced an increase in their fuel taxes.

Governments use this pattern of excessive taxation to provide themselves a steady profit.

This absurd system of taxation makes survival difficult for the public. For example, In Delhi, Central excise and State VAT (Value Added Tax) makes up for two-thirds of what a person pays at the petrol pump.

Basically, the entire fall in oil price has been captured by the Union Government without passing the benefits to the consumers. As a result, India has one of the highest tax rates on fuel, as compared to other countries.

But why is the government so keen on taxation of fuel?

This is because of the sharp fall in the revenues collected from GST (Goods and Services Tax) which has been a blow to both the states and the Union Government. Revenues collected from GST are 41% lower in the first quarter of 2020-’21, as compared to the same period of the previous year.

In 2017-’18, the gross tax revenue collected by the government rose from 9.98% of the GDP (Gross Domestic Product) to 11.22%. The main reason for this increase was a hike in taxes on petrol and diesel, by the government (primarily excise duty).

The money earned through taxes imposed on fuel stood at ₹46,386 crores in the financial year 2013-’14.

In 2017-’18, this leaped to ₹2,23,922 crore.

Even though the COVID19 forced the government to increase the excise duties on petrol and diesel to some extent, the gross-tax revenue had still fallen to 9.88% of the GDP, in the financial year 2019-’20, owing to the ill-implemented GST and the aftermath of demonetization. Hence, even if India wasn’t hit by COVID19, the government would still have had increased the excise duty on diesel and petrol, though not so drastically.

Earlier in January, Former Finance Secretary, Subhas Chandra Garg, pointed out that India might miss tax collection target for financial year 2019-’20 by nearly Rs. 2.5 lakh crore.

Drawing attention to the “grim” situation of underlying tax revenue situation, he further said, that it is the right time to initiate much-needed reforms in the taxation structure.

                            – Aanandita Singh