India considers raising palm oil import tax to help rapeseed farmers

India, the world's biggest importer of vegetable oils, is considering raising its import duty on palm oil to help support local farmers reeling from a crash in domestic rapeseed prices, government and industry officials said on Monday.

The increase in the tax on palm oil could lift local prices, making the tropical oil a little less competitive than rival soyoil and sunflower oil.

"We have proposed an increase in import duty on palm oil to support rapeseed prices," said a government official, who declined to be named in line with official rules.

"Rapeseed supplies from the new season are putting pressure on prices, which have fallen below MSP (minimum support price)," said the source referring to the government-set rate which acts like a benchmark for the domestic market.

If commodity prices fall below MSPs, the government usually tries to help prop up rates to protect farmers.

In spot markets, rapeseed prices were around 5,000 Indian rupees ($61.21) per 100 kg, below the government-fixed price of 5,450 rupees per 100 kg.

Indian farmers plant rapeseed, the main winter-sown oilseed, in October and November, with harvests from March. Higher prices encouraged farmers to expand the area under rapeseed.

After abolishing the basic import tax on crude palm oil (CPO) last year, India continues with a 5.5% tax on CPO shipments. The country also levies a 12.5% import tax on refined, bleached and deodorized palm oil.

"Since world prices have dropped, India is looking at raising the duty," the source said. "Overall food inflation might be a concern for the government, but vegetable oil prices have dropped."

Lower rapeseed prices have hurt farmers from India's western state of Rajasthan, and the government would like to protect growers ahead of the state election, trade and industry officials said.

Rajasthan accounts for more than half of the rapeseed production.

"There is a proposal to raise the duty, and an inter-ministerial panel is looking into it," said the second source, who also didn't want to be named citing official rules.