India’s retail inflation has cooled, but one item that has continued to sizzle is cooking oils. The ‘oils and fats’ component of the Consumer Price Index (CPI) has shown a persistent year-on-year escalation of 16-17 per cent in recent months. This is perhaps why the Centre decided to slash import duties on crude edible oils last week, just seven months after sharply hiking it. On May 30, the basic customs duty on crude soyabean, palm and sunflower oil was reduced from 20 per cent to 10 per cent, cutting the effective tariff to 16.5 per cent including cess. Duties on refined oils have been left untouched and remain at an effective 35.75 per cent.

Cooking oil has been a key contributor to inflation since September last year (when crude edible oils were raised from 0 to 20 per cent and refined oils from 12.5 to 32.5 per cent). The partial rollback now promises consumers some relief. While the change may also cheer the edible oil processing industry, farmers may need to budget for lower realisations. Tariff decisions on edible oils are a tricky balancing act, given the conflicting interests of consumers, the oil processing industry and farmers. For consumers, the perpetual shortfall in domestic supplies of cooking oil, the near-60 per cent import dependence and concentrated supply origins pose a problem. Soyabean, sunflower and palmoil crop prospects in Malaysia, Indonesia, Argentina or Brazil can trigger high volatility in global oil prices which gets passed on to Indian consumers. Farmers find the oilseed crop less remunerative than crops like paddy, where Minimum Support Prices are backed by assured procurement. Frequent tinkering with edible oil trade and tariff policies add to the uncertainty around realisations for farmers. The domestic solvent extraction and refining industry is plagued by excess capacity. With limited domestic availability of oilseeds, the industry relies on imported crude oils and manages profitable operations only when duty differentials between crude and refined oils are wide.

Given this situation, the Centre does appear to have struck a reasonable balance. By halving duties on crude edible oil, it has tried to bring down raw material costs for the oil processing and refining industry. The wide difference of 19.25 per cent between crude and refined oils makes it viable for refiners to use idle capacity for profitable operations. Farmer interests have also been kept in mind to an extent, by retaining a 10 per cent tariff on crude oils and not restoring it back to zero duty, as was the case before September 2024. However, the timing of this cut could have been better. Coming just when kharif sowing is picking up steam, the duty cut can prompt farmers to rethink oilseed acreage.

The extent of relief to consumers will also depend on whether the extraction and refining industry passes on cost savings. Should it prove tardy in passing on benefits, the Centre can consider slashing tariffs on refined oils too by 5-6 percentage points.

Published on June 8, 2025