The government imposed restrictions on imports of refined palm oil and palmolein on Wednesday, a move sources said was retaliation against top supplier Malaysia after its criticism of India's actions in Kashmir and the Citizenship (Amendment) Act, 2019 (CAA), a new citizenship law.
According to a notification of the Directorate General of Foreign Trade (DGFT), "import policy" is amended from "free to restricted" for refined bleached deodorised palm oil and refined bleached deodorised palmolein, a PTI report said.
On 20 December last year, Malaysian Prime Minister Mahathir bin Mohamad had reportedly said, "I am sorry to see that India, which claims to be a secular state, is now taking action to deprive some Muslims of their citizenship".
"If we do that here, you know what will happen. There will be chaos, there will be instability and everyone will suffer," he had said.
Earlier, Mahathir had said in the UN General Assembly that India had "invaded and occupied" Kashmir, PTI said.
Palmolien in restricted category
Putting the commodity in a restricted category means an importer will require licence or permission for the inbound shipment.
India, the world's largest importer of vegetable oils, buys nearly 15 million tonnes annually. Of this, palm oil comprises 9 million tonnes and the rest 6 million tonnes of soybean and sunflower oil.
Indonesia and Malaysia are the two countries that supply palm oil.
Malaysia produces 19 million tonnes of palm oil in a year, while Indonesia produces 43 million tonnes, the trade data showed.
Four industry sources told Reuters that the memo was an effective ban on imports of refined palm oil, meaning India can now only import crude palm oil. It will hit Malaysia, the main supplier to India of refined palm oil and palmolein, but is likely to help Indonesia, the biggest exporter of crude palm oil.
Palm oil accounts for nearly two-thirds of India's total edible oil imports. The country buys more than 9 million tonnes of palm oil annually, mainly from Indonesia and Malaysia. Indonesia is the world's biggest producer of palm oil, followed by Malaysia.
According to an industry source, the government has advised importers not to buy palm oil from Malaysia.
"We import 30 percent of the palm oils from Malaysia, while 70 percent from Indonesia. Our refiners can import from Indonesia which produces much higher than Malaysia," the source told PTI.
There would not be any extra cost on imports from Indonesia as the product and price are the same, the source added.
Palmolein is a liquid form of palm oil used in cooking.
The decision to restrict all imports of refined palm oil is also likely to boost business for Indian refiners of the vegetable oil.
Indian crude palm oil, soy oil soybean and rapeseed prices jumped after the announcement.
Move to punish Malaysia, help local refiners
"This move in a way will punish Malaysia and will help local refiners as well," a Mumbai-based refiner, who declined to be named, told Reuters.
The Ministry of Commerce and Industry did not respond to a request for further information, Reuters said. Malaysia's Primary Industries Minister Teresa Kok, who is responsible for the palm oil industry, declined to comment.
"Malaysia is in a lose-lose situation with this ruling," said Sathia Varqa owner and co-founder of Singapore-based Palm Oil Analytics, adding "India will ramp up buying of CPO from Indonesia."
Indonesia traditionally corned around two-third of India's palm oil imports, but a lower duty on refined palm oil helped Malaysia to overtake Indonesia as India's biggest supplier in 2019.
Palm oil is crucial for the Malaysian economy as it accounts for 2.8 percent of gross domestic product and 4.5 percent of total exports. State-owned and private Malaysian refineries will likely have to scramble to find new buyers for their refined products.
Indian refiners need the boost as refining activity in the country has been hit in the past year by imports of cheaper refined palm oil, said BV Mehta, executive director of the Solvent Extractors' Association (SEA), a Mumbai-based trade body.
"Indian refiners were struggling for survival ... The ban on refined palm oil imports will help refiners, local farmers and help in creating new jobs," Mehta said.
Commenting on the DGFT's notification, the SEA said the decision will go a long way in supporting the domestic refining industry by value addition within the country.
It will help in improving capacity utilisation of the domestic industry, it said in a statement.