Nepal's private sector has invested Rs 15 billion in 30 edible oil industries, but their operations remain heavily dependent on external markets and foreign policies. From raw material imports to final sales, these industries are influenced by trade regulations in other countries, particularly India.

Nepal’s edible oil producers have a total production capacity of 250,000 tonnes, of which only 50,000 tonnes are consumed domestically. The remaining 200,000 tonnes rely on exports to India, according to Nikhil Chachan, operator of Narayani Oil Refinery in Birgunj. However, frequent changes in India's trade policies have created uncertainty for Nepali exporters.

In September, India raised its import duty on edible oil, causing concern among Nepali entrepreneurs. Their worries intensified when the Indian government sent a directive to halt imports from Nepal. Similar restrictions have been imposed in the past, such as when India banned palm oil imports, disrupting Nepal’s exports. Entrepreneurs fear that India may reintroduce such policies to regulate prices in its domestic market.

Previously, when India imposed import duties as high as 40%, Nepali businesses imported semi-refined oil from third countries, refined it, and exported it to India. However, in 2022, India introduced a zero customs-duty policy to control domestic prices, significantly reducing Nepal’s exports. When India later fixed the import duties at 27.5%, Nepali exports resumed. Now, Indian entrepreneurs have reportedly urged their government to stop imports from Nepal, raising concerns among local oil producers again.

Suresh Rungta, operator of OCB Food, stressed the urgency for Nepal’s government to negotiate with India. "The government must intervene immediately to secure market access for Nepali products. Frequent disruptions could put domestic investments at serious risk," he said.

Nepal's edible oil industry expanded rapidly when India increased import duties, attracting investors who targeted the Indian market taking advantage of lower tariff applicable for Nepal. Nepali oil industries import semi-refined oil from Ukraine, Russia, Indonesia, and Malaysia, refine it, and then export it to India.

Nepal imposes a 10% excise duty and 13% value-added tax (VAT) on semi-refined oil imports, which are refunded upon export. Under the South Asian Free Trade Area (SAFTA) facility, Nepali oil is exported to India with zero to 5% duties. This arrangement benefits Nepal when India raises import duties on oil from other countries.

However, the industry's reliance on external policies remains a major concern. Supply chain disruptions, such as the Russia-Ukraine war in 2022, led to raw material shortages and export restrictions, pushing oil prices up by Rs 50 per litre. Similarly, when Indonesia banned raw material exports, Nepal’s edible oil production dropped to one-fourth of its capacity.

Entrepreneurs recall a similar crisis two decades ago in the vegetable ghee industry. Many ghee factories targeting the Indian market were forced to shut down after India imposed quantitative restrictions on imports. Now, edible oil producers fear history could repeat itself if Nepal fails to secure stable trade policies with its key export market.