While no decision has been made, the tax reduction could lower local prices and boost consumption, giving support to Malaysian palm oil, along with soy and sunflower oil prices, and dampening prices of local oilseeds such as rapeseed, soybean and groundnut.
"A proposal to lower the import duty on edible oils is under review," a government official with knowledge of the matter who asked to remain unidentified said on Wednesday.
The government will make a final decision to cut the taxes sometime this month, said an official at the Ministry of Consumer Affairs also involved in the process who asked to remain unidentified.
Domestic soyoil and palm oil prices have more than doubled in the past year, hitting consumers already stung by record fuel prices and reduced incomes amid the COVID-19 pandemic.
Graphic: Edible oil price moves
India meets nearly two-thirds of its edible oil demand through imports, levying a 32.5% tax on palm oil imports, while crude soybean and soyoil are taxed at 35%.
It buys palm oil from Indonesia and Malaysia, and soyoil and sunflower oil come from Argentina, Brazil, Ukraine and Russia.
"There are different views about it. One view is to first monitor the planting of Kharif (summer-sown) oilseeds and see how it pans out," said the first official.
"The other view is to evaluate the impact of lowering the duty," he said, noting this has to be weighed against the risk of suppliers raising prices.
However, some in the industry are opposed to cutting import duties because that may only help overseas suppliers and discourage farmers from expanding oilseed acreage, said the consumer affairs official.
"Revenue is not an issue. The government's tax collection would remain the same as last year since prices have gone up in the world market," the official said.
The average landed price of crude palm oil at Indian ports was $1,173 per tonne in April 2021 compared to $599 a year ago, according to data from the Solvent Extractors' Association of India (SEA), a trade body.
During a meeting with government officials last week on reducing edible oil prices, the SEA suggested using the taxes to subsidise sales to consumers, said the group's head B.V. Mehta.
"The government can help poor people even without cutting import tax by providing subsidised edible oils," Mehta said.
(Reporting by Rajendra Jadhav and Mayank Bhardwaj; Editing by Christian Schmollinger)
By Rajendra Jadhav and Mayank Bhardwaj