Edible oil producers in Nepal have raised concerns after Indian edible oil industrialists recently wrote letters to Indian Prime Minister Narendra Modi and various ministers, urging them to control vegetable oil imports from Nepal.

Following India’s decision to increase customs duties on crude soybean, sunflower, and palm oil imports from other countries in September 2024, Nepal’s refined soybean and sunflower oil exports to India have surged due to the zero customs duty facility. Despite this increase in customs duty, the export of palm oil has remained low, according to the Department of Customs of Nepal.

In early September 2024, India raised the customs duty on crude soybean, sunflower, and palm oil from zero to 20 percent. The Indian government has stated that the total tax rate on crude oil imports, including other levies, now stands at 27.5 percent. However, under the Nepal-India Trade Agreement, Nepal can export goods to India at zero customs duty. Taking advantage of this provision, Nepali businesses have processed these oils and increased exports to India.

The surge in refined oil imports from Nepal has prompted Indian refining industry operators to appeal to Modi for restrictions. According to Indian media reports, industrialists argue that duty-free imports under the South Asian Free Trade Area (SAFTA) agreement have adversely affected their refining industries, farmers, and government revenue. They have urged the Indian government to take immediate action to curb these imports.

However, some industry representatives in Nepal dismiss these concerns. "Nepal's production is not even sufficient to meet the demand of a single Indian state. The amount of oil exported from Nepal will not cause major disruptions in India's market," said Morang Trade Association President Anupam Rathi. He emphasized the need for diplomatic discussions to protect Nepal’s industries.

There are eight vegetable oil refineries in Koshi Province, exporting their products to India under the Nepal-India Trade Agreement and SAFTA. Vegetable oil remains the top export from the Biratnagar Customs Office.

According to Nepal’s Department of Customs, refined soybean oil exports reached Rs 18.91 billion in the first six months of the current fiscal year, a sharp rise from Rs 415.1 million in the same period last year. Similarly, refined sunflower oil exports surged to Rs 4.98 billion, up from Rs 148.7 million.

Data from the Biratnagar Customs Office shows that in Poush (mid-December to mid-January), soybean oil was Nepal’s top export, with 14.6 million kg worth Rs 3 billion sent to India. Sunflower oil ranked second, with exports of 1.08 million kg worth Rs 1.06 billion.

In the first six months of Fiscal Year 2023/24, Nepal exported 27.28 million kg of soybean oil, valued at Rs 5.42 billion. Sunflower oil exports reached 26.37 million kg, amounting to Rs 1.34 billion. The sharp rise in exports has intensified concerns among Indian industrialists.

Prakash Mundada, Senior Vice President of the Confederation of Nepalese Industries and Director of Baba Vegetable Oil Industries, called for the continued implementation of SAFTA provisions. He suggested that if SAFTA benefits are restricted, Nepal and India should negotiate a quota system to facilitate exports.

Bipin Kabra, a central member of the Nepal Vegetable Ghee Oil Producers Association, pointed out that India itself benefits from SAFTA to export hundreds of products to Nepal. “There should be no objection to Nepal exporting vegetable oil under the same agreement,” he said. Kabra emphasized that Nepal’s contribution to India’s overall edible oil supply is negligible, dismissing concerns of market dominance.

Morang Trade Association President Rathi urged the government to take proactive measures to support Nepal’s industries. “The government must maintain policies that encourage industrial growth,” he said. “Diplomatic talks between Nepal and India are essential to ensure the survival of Nepal’s refining industry while maintaining stability in the Indian market.”