Nepal’s edible oil imports hit the Rs100 billion mark in the third quarter of the current fiscal year. But no, that doesn’t make Nepalis cooking oil guzzlers. Less than 20 percent of the edible oil that Nepal imports is consumed in the country, with the remaining re-exported, almost all to India.

Experts say that since Nepali traders import crude edible oil by paying for it in US dollars and re-export it to India for Indian rupees, this could be one of the reasons behind the depleting dollar reserves.

According to the latest statistics of the Department of Customs, Nepal imported crude edible oil (vegetable oil and animal fats) worth Rs99.51 billion in the first nine months of the current fiscal year. The product is mostly re-exported to India by Nepali refineries.

The boom in imports—and then export—is due to the zero-tariff privilege that Nepal enjoys being a least developed country, insiders say.

Oil imports have nearly doubled compared to imports of Rs51.78 billion in the same period of the last fiscal year.

The government earned Rs10.87 billion in tax revenue by allowing traders to exploit the trade privilege which experts say is a rent-seeking business.

Exports of edible oil jumped 177.65 percent to Rs83.74 billion in the first nine months of the current fiscal year.

“We are spending a huge amount of US dollars to import raw edible oil,” former commerce secretary Purushottam Ojha told the Post in a recent interview. “We earn Indian currency by exporting the finished product.”

Experts have for long called for addressing this issue and it becomes even more imperative now when the country’s foreign exchange reserves are under pressure due to surging imports and falling remittances and low earnings from tourism, which is just trying get back on its feet after being hit badly by the pandemic.

According to Nepal Rastra Bank, the gross foreign exchange reserves stood at $9.58 billion while the balance of payments remained at a deficit of Rs258.64 billion in the first eight months of the current fiscal year ended in mid-March.

In the last fiscal year, the import of edible oil stood at Rs82.90 billion while exports amounted to Rs55.95 billion.

Customs statistics show that Nepal imported 282.10 million litres of crude soybean oil worth Rs45.58 billion and exported 178.74 million kg of processed soybean oil worth Rs43.30 billion in the review period.

Nepal has been importing crude soybean oil from Argentina, Paraguay, Egypt, Brazil, Turkey and Ukraine.

Similarly, 238.24 million litres of crude palm oil valued at Rs32 billion was imported in the first nine months of the current fiscal year. The country exported 125.92 million kg of palm oil worth Rs26.75 billion in the first nine months of the current fiscal year.

In mid-February, India decided to cut the import duty on crude palm oil from 7.5 to 5 percent to lower edible oil prices. Nepali traders had said that India’s tariff cut could hit Nepal’s exports, but shipments have actually been setting new records.

Previously too, in October last year, the Indian government had slashed import duty on crude palm oil to 2.5 from 10 percent, and on crude soybean oil and crude sunflower oil to 2.5 from 7.5 percent. However, Nepal's exports of refined edible oil have been increasing despite the reduced duties.

Tariff exemptions on Nepali exports to India under the South Asian Free Trade Area agreement give domestic traders an advantage. Countries outside of South Asia are slapped with tariffs of 54 percent on palm oil and 45 percent on soybean oil.

Nepal has been importing crude palm oil from Indonesia and Malaysia.

Nepal imported 98.90 million litres of crude sunflower oil worth Rs16.49 billion in the first nine months and exported 20 million litres of refined sunflower oil worth Rs4 billion. Similarly, it has been importing crude sunflower oil from Argentina, Russia and Ukraine.

Despite the impressive export statistics, Nepal's edible oil trade contributes very little to the national economy and provides few jobs to the Nepali people, economists say.

All the refined edible oil is re-exported to India. India is one of the world’s largest buyers of vegetable oils as farmers have typically focused on growing cotton and staples like rice, wheat and sugar, partly because the government sets price floors for these crops and buys some of them, such as food grain in bulk for its welfare programmes

Till around 1996, the rules of origin had not been defined in the trade with India, and the southern neighbour was providing duty-free access to Nepali products in a bid to promote industrialisation in Nepal.

But the condition was later changed after Nepali traders began misusing the provision in vegetable ghee and copper wire trade, economists say. In the 2002 trade treaty, India added the value addition criteria, tariff rate quota and tax provision, said trade experts.

“The edible oil that Nepal re-exports has low value addition, but I am not on the side of saying that such industries need to be closed down,” said former commerce secretary Chandra Ghimire. "The importing country has the option of restricting entry of the goods if they do not have sufficient value addition," he said.

According to him, the product definitely has low value addition, but the government needs to create a policy to add high value so that the country can get maximum benefit.

Economists, however, say the country needs to formulate some policies as per the changing needs and in view of the economic situation.

“At a time when the country is not good in a position economically, imports of such products which have minimal contributions in the economy need to be discouraged, as such a move can help keep foreign exchange within the country,” said Govinda Nepal, an economist.

According to Nepal, the facility the country is getting is being grossly misused to re-export such products with little value addition.

“Figures in paper don’t contribute to the economy,” said Nepal. “This is definitely not a sustainable model of doing business.”

Narayan Prasad Regmi, joint secretary of the Ministry of Industry, Commerce and Supplies, however, says when goods are imported and re-exported, it does not make any impact on foreign currency reserves.

“The processed edible oil is exported after 30 percent value addition and it is not just simply ‘refining’ as some claim,” Ghimire told the Post. “This process also creates employment to some extent. And we cannot instruct traders not to do business.”