Industry, however, flayed the government decision saying that such a move will adversely affect the sector as well as farmers.
The Cabinet Committee on Economic Affairs in its meeting took the twin decisions on edible oil, according to sources.
Import of crude edible oil, at present, attracts no duty while it is 7.5 per cent on refined edible oil.
"Earlier difference between import duty on refined and crude edible oils was 7.5 per cent, but now it has come down to 5 per cent, which will lead to more import of RBD palmolein and hurt domestic refiners," Solvent Extractors Association of India (SEA) Executive Director B V Mehta said.
The domestic edible oil refining industry is already facing a tough time due to inverted duty structure of Malaysia and Indonesia, major suppliers of crude and refined palm oil, he added.
"We had urged the government to raise import duty on crude palm oil to 10 per cent and refined palm oil to 20 per cent to protect soyabean and mustard farmers who are facing a tough time in getting good prices due to heavy oil imports," he said.
The domestic refining industry will again approach the government to reconsider this decision, which will affect both the farmers and the industry, Mehta added.
India imports about half of its total domestic requirement of cooking oil.
In 2011-12 oil year (November-October), total imports of vegetables oils (edible and non-edible oil) were at all-time high of 10.19 million tonnes. In the first two months of the current oil year, imports are up by 5 per cent.
The Agriculture Ministry had proposed to increase the duty on crude edible oil to protect the interest of palm growers, particularly from Andhra Pradesh.
Earlier this week, Agriculture Minister Sharad Pawar, Finance Minister P Chidambaram and Food Minister K V Thomas reviewed edible oil imports and discussed the issue of raising the duty on edible oil.
The Agriculture Ministry wanted to increase the import duty on crude edible oil to 7.5 per cent from zero per cent, while the same on refined oil to 15 per cent from the present 7.5 per cent. But during the inter-ministerial meeting, the finance ministry had felt this would lead to rise in inflation.
Malaysia is destroying natural environment by unrestrained destruction of natural forests there to produce low quality palm oil, and it has already destroyed many animal and plant species there to near extinction. In every way, Malaysia has to be forced to stop the destruction of earth's natural enivronment and reduce the way it is relentlessly emitting greenhouse gases into atmosphere through it's greed inspired and very destructive so called halal economy. 2.5% is not enough, a minimum of 25% needs to be imposed and a joint effort by world nations to take Malaysia to task for its anti humanity economic activities must be made to save the earth.