Export restrictions on sugar; duty-free imports of sunflower and soyabean oil

Within a fortnight of banning wheat exports and continuing with fiscal policy measures to contain domestic inflation, the government announced on Tuesday that sugar exports will be restricted beginning June 1 and that duty-free imports of 20 lakh metric tonnes of crude soyabean oil and crude sunflower oil will be allowed for two fiscal years (2022-23 and 2023-24).

The government announced it would allow exports of up to 100 lakh (10 million) MTs of sugar during the current sugar season to maintain "domestic availability and price stability" (October 2021 to September 2022).

"With effect from 1 June 2022 until 31 October 2022 or until further orders, whichever is earlier, export of sugar is allowed only with specific permission from Directorate of Sugar, Department of Food and Public Distribution (DFPD, Ministry of Consumer Affairs, Food & Public Distribution," said a notification by the Directorate General of Foreign Trade (DGFT).

The Department of Food and Public Distribution will release detailed instructions for obtaining necessary licences for sugar export separately."

India is the world's largest producer of sugar and the second largest exporter behind Brazil. The move comes as the country prepares to record its highest-ever exports this year. "For the current sugar season 2021-22, contracts for roughly 90 lakh MT of export have been inked." Sugar mills have shipped around 82 lakh MT for export, with approximately 78 lakh MT having been exported. Sugar exports are at an all-time high in the current sugar season (2021-22), according to a source.

According to sources, the sugar closure stock at the conclusion of the sugar season (September 30, 2022) is 60-65 lakh MT, which is nearly three months' worth of domestic stock. "The government has been closely monitoring the sugar sector's position, including sugar production, consumption, export, and pricing movements in wholesale and retail markets across the country," a source said.

For the next two fiscal years, the Centre has announced duty-free imports of 20 lakh MT of crude soyabean oil and crude sunflower oil (2022-23 and 2023-24). The decision, which includes no customs duty and no agricultural infrastructure and development cess, will benefit consumers significantly, according to the Central Board of Indirect Taxes and Customs.

From May 25 this year through March 31, 2024, the tariff rate quota will be changed. India, which imports about 60% of its edible oil, has seen prices rise this year as a result of a broader increase in international prices following Russia's invasion of Ukraine, which slashed sunflower oil supplies. In addition, Indonesia recently imposed a restriction on palm oil exports, which was later replaced by a domestic sales cap.

This comes as the government struggles to keep severe inflationary pressures under control, with food, fuel, and agricultural nutrients costs skyrocketing.

In April, retail inflation hit an eight-year high of 7.79 percent, while wholesale inflation has been in double digits for 13 months in a row. Throughout 2021, retail edible oil inflation remained between 20 and 35 percent, with the most recent figure for oils and fats inflation being 17.28 percent in April.

Over the weekend, the Centre announced tax cuts on gasoline, diesel, coking coal, and steel-making raw materials as part of its efforts to cool rising inflationary pressures. According to some economists, the reduction in fuel taxes might directly lower inflation by roughly 20 basis points in June, when the entire impact will be obvious. The consequences in the second round are likely to be just as profound.

The Reserve Bank of India indicated concern about high food and gasoline prices feeding inflation while cutting the repo rate by 40 basis points in an out-of-turn monetary policy meeting earlier this month.