Nepal’s exports surged by 72.71 percent in the first 10 months of the current fiscal year ended mid-May. This dramatic increase was driven primarily by the re-export of edible oils—particularly soybean, sunflower, and palm oil—commodities that Nepal does not produce in sufficient quantities to even meet its domestic demand.

Of the total, edible oil exports to India amounted to Rs90 billion.

According to the Department of Customs, Nepal exported goods worth Rs217.91 billion during the review period, a sharp rise from Rs126.17 billion recorded during the same period last fiscal year.

If edible oil exports are excluded, total exports amount to just Rs127.89 billion, which shows the disproportionate impact of edible oil on overall trade figures.

Soybean oil exports increased 90-fold from the last fiscal year.

During the 10-month period, Nepal exported 374,086 tonnes of soybean oil valued at Rs78.75 billion. This figure is closely matched by imports: Nepal brought in 539,549 tonnes of crude soybean oil worth Rs81.89 billion, primarily from Argentina, Brazil, China, Iraq, Thailand, and Ukraine, with smaller quantities coming from Benin, Paraguay, and Togo.

Similarly, sunflower oil exports rose 62-fold over the same timeframe. The country exported 457,760 tonnes of sunflower oil worth Rs10 billion. On the import side, Nepal brought in 166,527 tonnes of crude sunflower oil worth Rs24.64 billion, mainly from Argentina and Ukraine, followed by Romania.

Nepal also exported 6,685 tonnes of palm oil valued at Rs1.16 billion and imported 32,318 tonnes of crude palm oil worth Rs4.60 billion, primarily from Indonesia and Thailand, with Malaysia also serving as a supplier.

Beyond edible oils, Nepal's top 10 exports during this period included carpets, large cardamom, rolled iron and steel, jute and other fabrics, juice, felt, tea, dog chews, plywood, and oil-cake.

The rapid surge in refined soybean oil exports to India has triggered concerns among Indian oil producers, who argue that the trade violates the South Asian Free Trade Area (SAFTA) agreement. Under SAFTA and the India-Nepal Trade Treaty, Nepali exports to India enjoy zero-duty access.

In contrast, countries outside South Asia must pay a 45 percent tariff on soybean oil exports to India. This significant tariff differential has encouraged traders to re-route edible oils through Nepal, exploiting duty-free access to the Indian market.

This practice has allowed Nepali traders to profit from the loophole, though experts and policymakers question such trade strategies' long-term viability and legality.

In September last year, India raised the basic import tax on crude and refined edible oils by 20 percent to support domestic farmers facing falling oilseed prices. Since then, soybean oil exports from Nepal to India have escalated rapidly.

In February, the Solvent Extractors’ Association of India (SEA) urged the Indian government to regulate edible oil imports from Nepal and other SAARC neighbours. The association alleged that these imports bypass rules of origin, violate trade regulations, and negatively affect Indian refiners, farmers, and government revenues.

Responding to growing concerns, the Indian Ministry of Finance amended the Customs Rules of Administration of Rules of Origin under the Trade Agreement, 2020, in March. The amendment replaced the Certificate of Origin with a more stringent Proof of Origin requirement to tighten control over trade flows.

Trade experts have expressed doubts about the level of value addition in these exports.

According to them, in many cases, the value addition is below 15 percent, far short of the 30 percent required under Nepal’s trade regulations for duty-free exports to India.

Rabi Shankar Sainju, a trade expert, told the Post in a recent interview that traders often import processed liquid soybean oil, repackage it into smaller units, and re-export it to India. This process often involves minimal local labour and relies on manipulated documentation.

Sainju criticised the government for staying silent on this issue, pointing out that such practices artificially inflate Nepal’s export data without fostering real industrial investment or boosting national revenue.

Paras Kharel, executive director of South Asia Watch on Trade, Economic and Environment, offered a nuanced view. He noted that Nepal is indeed importing crude soybean and sunflower oil and exporting refined versions to India in accordance with SAFTA rules.

Under those rules, products must meet two conditions: a minimum of 30 percent value addition and a six-digit change in the tariff sub-heading. If Nepali traders meet these requirements, then the trade is legitimate.

Kharel added that if the rules are being manipulated, both the Nepali and Indian governments must launch an investigation and take corrective action. According to him, if India continues to accept Nepal’s Certificates of Origin, the current trade practices may still be within legal bounds.

From this perspective, the trade in edible oils may not be strictly illegal or in violation of SAFTA.

However, the sustainability and economic value of this trade remain in question. As both countries face pressure to balance domestic interests with regional trade obligations, trade experts say the edible oil boom between Nepal and India demands further scrutiny and policy clarity.