India should impose a 10 percent tax on crude palm oil imports to protect its farmers and the industry from cheap imports, a leading analyst said on Sunday.
Many trade and industry officials fear that India, the world's biggest importer of vegetable oils, could hike imports as inventories surge in top producers Indonesia and Malaysia.
Falling benchmark Malaysian prices could also lead to higher purchases from India, they say.
"It is important for the Indian government to think in terms of some small protection, say a 10 percent import duty on crude palm oil, to protect India's poor oilseed farmers," Dorab Mistry, director at Godrej International Ltd, told an industry conference in New Delhi.
India's edible oil imports are likely to rise more than 4 percent to 10 million tonnes in the 2012/13 (November-October) marketing year as domestic output lags rising demand.
"Indian inflation will soon come under control. Once that happens, it will be necessary to levy a small import duty on unrefined vegetable oil imports," Mistry said.
Wholesale price inflation is running at around 7.8 percent.
Currently India allows tax-free imports of crude vegetable oils and imposes 7.5 percent duty on refined varieties. Palm oil constitutes about 80 percent of India's cooking oil imports.
But India should avoid taking frequent administrative measures such as increasing or lowering import levies and should focus on raising productivity of oilseeds, said Thomas Mielke, who heads Germany's Oil World publication.
Malaysian stocks rose to a record high of 2.48 million tonnes in September, data from the Malaysian Palm Oil Board showed.
Malaysian palm oil prices have dropped 21 percent so far this year as stocks rise in Indonesia and Malaysia and demand slumps due to the economic slump.
On Friday, benchmark Malaysian palm oil futures closed at 2,496 ringgit a tonne, down 1.6 percent.
India used to import crude palm oil from Indonesia, the world's biggest producer. But New Delhi turned to Malaysia after Indonesia cut export taxes for refined palm oil to encourage its own processing industry and limiting sales of crude palm oil.
Both Indonesia and Malaysia will have record stocks of palm oil at the start of next year, while South American soybean output will rise in the first three months of 2013, Mistry said.
India looks likely to harvest a good rapeseed crop, he said.
Farmers in India plant rapeseed, the main winter-sown oilseed, from October and harvest starts in March.