Palm oil is turning into fuel—and India’s import bill could rise

Indonesia and Malaysia — the world's two largest palm oil producers, together accounting for over 85% of global palm oil supply — are expanding their biodies...

What Happened

Indonesia and Malaysia — the world's two largest palm oil producers, together accounting for over 85% of global palm oil supply — are expanding their biodiesel mandates, diverting increasing volumes of crude palm oil (CPO) from global food markets into domestic fuel blends.
Indonesia has moved toward a B50 mandate (50% palm oil biodiesel blend in subsidised diesel), accelerating from B40 amid energy security concerns linked to the West Asia conflict and elevated crude prices; Malaysia has implemented a B15 mandate, expected to add over 300,000 metric tonnes annually to domestic CPO consumption.
As both countries absorb more CPO domestically, the volume available for international trade contracts — tightening global palm oil supply, pushing up prices, and threatening India's food inflation outlook and import bill.
India currently imports over 95% of its palm oil requirements and palm oil constitutes 55.4% of India's total edible oil imports — making it the most exposed large economy to this supply shift.

Static Topic Bridges

India's Edible Oil Import Dependence: Scale and Composition

India is the world's largest importer of vegetable oils, and its import dependence in edible oils is one of the most significant structural vulnerabilities in its food economy. The country's domestic oilseed production has historically failed to keep pace with consumption growth driven by population expansion and dietary shifts.

Total edible oil imports in 2023-24: approximately 15.66 million tonnes, meeting roughly 56–57% of total domestic demand.
Palm oil's share of India's edible oil imports: 55.4% — the single largest item; India sources it almost entirely from Indonesia and Malaysia.
Other key edible oil imports: soybean oil (Argentina, Brazil), sunflower oil (Ukraine, Russia, Argentina).
India's annual edible oil consumption: approximately 24–25 million tonnes; domestic production covers only 43–44%, primarily through soybean, mustard, groundnut, and coconut oil.
India's palm oil import dependence exceeds 95% of domestic palm oil demand — making it uniquely vulnerable to Indonesian and Malaysian domestic policy changes.

Connection to this news: When Indonesia raises its biodiesel mandate from B40 to B50, the incremental domestic absorption of CPO is enormous given Indonesia's production scale — every percentage-point increase in blend mandate materially shrinks global CPO availability, with price effects that feed directly into India's import costs and food inflation.

National Mission on Edible Oils (NMEO): Policy Response to Import Dependence

Recognising chronic import dependence as a food security and foreign exchange risk, the government has launched two complementary missions to boost domestic oilseed and oil palm production.

NMEO-Oil Palm (NMEO-OP): Launched in August 2021 with a target of increasing oil palm area under cultivation and raising Crude Palm Oil (CPO) production to 11.20 lakh tonnes by 2025-26 (from 1.91 lakh tonnes in 2014-15; reached 3.80 lakh tonnes by 2024-25).
NMEO-OP focuses on the Northeast India and Andaman & Nicobar Islands as the primary expansion zones, given suitable agro-climatic conditions.
NMEO-Oilseeds: Approved by the Cabinet in September 2024, covering 2024-25 to 2030-31 with a target of achieving 72% self-sufficiency in edible oils by 2030-31. This mission covers 9 major oilseed crops including groundnut, soybean, mustard, sunflower, and sesame.
Both missions use the Centrally Sponsored Scheme (CSS) funding pattern with a mix of Centre and State shares.
As of November 2025, cumulative oil palm coverage: 6.20 lakh hectares.

Connection to this news: Despite NMEO-OP's progress, India remains years away from meaningful palm oil self-sufficiency given the long gestation period of oil palm trees (3–4 years to first yield, 7–8 years to full yield). In the near term, any tightening of global palm oil supply due to biodiesel mandates directly translates into higher import costs and food inflation in India.

Biofuel Policy and the Food vs. Fuel Debate

The diversion of food-grade vegetable oils into biofuel production is a recurring tension in energy and food policy. When edible oil prices rise as a result of biodiesel mandates, the cost increase cascades through the food system — cooking oil is a universal food input, making it a politically and nutritionally sensitive commodity.

Biofuel mandates are government-set requirements that vehicle fuel must contain a minimum percentage of biofuel (ethanol or biodiesel). Higher mandates directly reduce the supply of feedstock crops/oils available for food use.
Indonesia's B50 programme is partly an energy security response to high crude prices: substituting 50% biodiesel in subsidised diesel reduces dependence on imported crude oil.
The Food and Agriculture Organization (FAO) and the International Energy Agency (IEA) have both flagged that aggressive biodiesel expansion in major producer countries can worsen global food price volatility, particularly for low-income net-importing countries.
India's own biofuel policy — the National Policy on Biofuels 2018 (updated 2022) — targets 20% ethanol blending in petrol by 2025 (using surplus food grains and sugarcane molasses) and 5% biodiesel blending using non-edible feedstocks (jatropha, algae) — explicitly avoiding the diversion of edible oils into fuel, unlike Indonesia and Malaysia.
India's approach reflects the food-fuel trade-off: as a net oil importer and a large food-insecure population, India cannot afford to follow the same edible-oil-to-fuel route.

Connection to this news: Indonesia and Malaysia's biodiesel choices — rational from their own energy security perspective — create a negative externality for food-import-dependent countries like India. This illustrates the global policy coordination deficit on biofuel standards, and the asymmetric burden on developing importing nations.

Edible Oil Prices and Food Inflation in India: CPI Linkage

Edible oils are a significant component of India's Consumer Price Index (CPI) food basket, directly affecting food inflation — the metric the RBI watches most closely given its weight in CPI (food and beverages constitute approximately 45% of the CPI basket).

Edible oils are included in the CPI food basket under the "oils and fats" sub-group. When palm oil import prices rise, domestic retail prices for all vegetable oils tend to rise in tandem due to cross-oil substitution effects.
India's experience with edible oil inflation in 2021-22 (when global prices spiked due to COVID supply disruptions, the Indonesia palm oil export ban, and the Ukraine war's impact on sunflower oil) demonstrated how rapidly global supply shocks transmit to Indian retail prices.
Indonesia imposed a temporary palm oil export ban in April–May 2022 — causing an acute price spike — before reversing under fiscal pressure (Indonesia taxes palm oil exports via a levy mechanism, making export bans self-defeating).
The government has used import duty reductions on edible oils as a demand-side cushion: basic customs duty on crude palm oil was cut to zero in 2021 and has been managed at low levels (5% currently) to limit domestic price pass-through.

Connection to this news: A sustained supply tightening from biodiesel diversion (unlike the 2022 export ban, this is structural and not easily reversed) poses a more durable food inflation risk. India cannot cut customs duty below zero — so once duty is near-zero, the government has limited tools to insulate domestic prices from global supply squeezes.

Key Facts & Data

Indonesia + Malaysia combined share of global palm oil supply: over 85%.
Indonesia's biodiesel mandate trajectory: B35 → B40 → B50 (2026).
Malaysia's biodiesel mandate: B15 (15% palm oil biodiesel blend).
India's palm oil import dependence: over 95% of domestic palm oil demand.
Palm oil share of India's total edible oil imports: 55.4%.
India's total edible oil imports 2023-24: approximately 15.66 million tonnes.
India's edible oil self-sufficiency: approximately 43–44% of domestic demand.
NMEO-OP launched: August 2021; CPO production target 2025-26: 11.20 lakh tonnes.
NMEO-Oilseeds self-sufficiency target: 72% by 2030-31.
National Policy on Biofuels 2018 (updated 2022): India's ethanol blending target — 20% in petrol by 2025; uses surplus food grains, not edible oils.
Indonesia's 2022 palm oil export ban: April–May 2022; reversed due to fiscal pressure on export levy revenues.
Food and beverages share of CPI basket: approximately 45%.