Palm Oil Imports: India Warns Malaysia That Bilateral Ties Are 'Factored' in Trade Transactions

MEA spokesperson Raveesh Kumar said the restrictions on import were “not country-specific”, before adding that the “status” of bilateral ties are a factor for Indian businessmen to buy products from a particular country.

New Delhi: A day after India imposed restrictions on imports of refined palm oil with an eye to shutting out Malaysia, the Ministry of External Affairs said on Thursday that the “status” of bilateral ties are a factor for Indian businessmen to buy products from a particular country.

The Directorate General of Foreign Trade (DGFT) had issued a notification on January 8 that foreign trade policy had been amended from “free” to “restricted” for three categories under refined palm oil.

Once a commodity is put in a restricted category, it means that an importer will have to obtain a license. These licenses are given on a case-to-case basis.

The step has been taken after relations with Malaysia have become strained over the country’s Prime Minister Mahathir Mohamad’s strong criticism of Indian policies in Kashmir and the passage of the Citizenship (Amendment) Act (CAA).

India is the largest importer of palm oil, which has been largely brought from Malaysia, Indonesia and more recently, from Nepal.

According to the commerce ministry’s export-import data bank, India had imported $425 million worth of “Refined Bleached Deodorised Palmolein” from Malaysia in 2018-19. From 2019-20 April to November, this had already doubled to $949 million.

In contrast, the numbers had dropped drastically for Indonesia. While import value had stood at $985 million in 2018-19, it decreased to just $74 million for the nine months of this financial year.

In the second category of “Refined Bleached Deodorised Palm Oil”, Malaysian imports accounted for $2.67 million, while Indonesian imports had been $5.67 million in 2018-19.

From April to November 2019-20, imports from Malaysia in this category was $1.38 million, less than half of last year’s imports. It slumped even further for Indonesia, to just around $800,000.

At the weekly briefing on Thursday, MEA spokesperson Raveesh Kumar first said the notification was “not country-specific”. But, then he added that Indian businessmen also factor the state of bilateral relationships when importing products from foreign countries.

“…so, the status of the relationship is important… If I am an importer and I have to import a certain product from a country, I would certainly keep that at the back of my mind, as to how the status of the two countries are,” he told reporters.

When asked how he would characterise the current state of ties, Kumar indicated that the relationship remained in the doldrums.

“In the past, there have been statements made by the Malaysian prime minister on which we have reacted, sometimes very strongly. We have told them that we have age-old ties. We have had a very good relationship. We have told them that they should keep in mind the sensitivities that we have on some of these topics,” said Kumar.

But, India’s strong reactions do not seem to have changed the Malaysian PM’s mind. “Unfortunately, despite our statement, we keep on getting sentiments and statements from their side. We do hope that at some stage they will realise that this is not the appropriate thing to do,” he stated.

Ministry of external affairs spokesperson Raveesh Kumar. Photo: PTI

Over the past three years, there has been a reduction in duties, which has led to import of palm oil from Malaysia to jump by 800%, said an official.

Mahathir Mohamed’s statement that India had “invaded and occupied” Jammu and Kashmir was made at the United Nations General Assembly in September 2018.

Ten days later, Reuters reported that the government was mulling restrictions on the import of palm oil from Malaysia in retaliation.

However, the government did not take those steps then. Instead, there were reports that Malaysia had offered to smoothen tensions by buying more Indian export items.

In November last year, a trade body reported that 2019-20 was seeing a surge in imports of refined palm oil from Malaysia, on the back of reduced import duty.

A Southeast Asian diplomat noted that there had been anticipation that India would take steps to limit imports of RPO, not just due to the Malaysia factor, but also due to lobbying by refineries. Another diplomatic source mused that India’s “tough tactics on a close friend like Malaysia reminds us of China’s strong-arm tactics too”.

According to a PTI report, the commerce ministry had held a meeting with edible oil industry members on Monday (January 6) to ask them to avoid purchasing Malaysian palm oil and instead look towards Indonesia.

This year, Indonesia’s palm oil export to India has fallen drastically, largely due to the 5% tariff advantage for Malaysia.

With the government having control on import licenses, the expectation is that India will be more liberal in purchasing palm oil from Indonesia and Nepal.

It is not, however, clear if Indonesia will be able to pick up the slack, with diplomatic sources indicating, that “some adjustments would be necessary”.

Meanwhile, the other country which is facing uncertainty after India placed refined palm oil in the “restricted” category is Nepal.

Palm oil has become one of Nepal’s top export items in the past two years, with business groups setting up re-packaging facilities to take advantage of lower tariff access to the Indian market under the South Asia Free Trade Agreement (SAFTA).

Speaking to The Wire, president of Nepal Vegetable Ghee and Oil Manufacturers Association, Sandeep Agrawal said that following the DGFT notification, all exports to India have stopped completely. “Our counterparts in India are trying to find out what the new system means. Till then, everything is stopped,” he said.

Agrawal said that contracts for the supply of 25,000 to 30,000 tonnes of palm oil were pending, when the notification was issued on January 8. “We are hoping that there will be some clarity soon,” he said.