This article first appeared in The Edge Financial Daily on March 7, 2018

KUALA LUMPUR: Industry expert Dorab Mistry said the recent hike in India’s import tax on palm oil may not last long, with a possible reduction by May due to inflation and high cost of living.

Dorab said the Indian government raised the duty as a panic reaction or a temporary solution in support of domestic farmers ahead of provincial elections in two oilseed states — Madhya Pradesh and Rajasthan.

“With election around the corner, it needs to make oilseed farmers, who are the poorest, happy. So whatever done for farmers is a bonus but I believe the higher import duty is temporary,” he said.

However, before it brings down the tax — which last week rose to 54% from 40% for refined palm oil, and to 44% from 30% for crude palm oil — the government would first raise import duty on all vegetable oils — soya, rapeseed and sunflower — to ensure a level playing field, said Dorab.

Speaking at the Palm and Lauric Oils Price Outlook Conference & Exhibition, Dorab said the palm oil import tax hike — along with increases in sugar and wheat import tariffs — could lead to a weaker rupee and therefore cause inflation.

“Inflation will upset urban consumers, so the government may bring the duty down again. This is a conjecture or a projection for the future but this is what I feel — that the Indian government wants to embrace a dynamic import policy,” he said.

Commenting on the fall in palm oil prices since the duty hike, Dorab said: “I don’t think the market needs to be sold on the basis of one action by the Indian government. We should wait and watch, and let things stabilise.”