Nepal exported 704,844 tonnes of refined soyabean, palm and sunflower oil worth Rs146 billion to India in the last fiscal year, even though it produces only a negligible amount of the raw materials. Experts say the trade is a classic example of a rent-seeking business that exploits tariff differentials rather than generating genuine domestic value.

The rapid growth of edible oil exports has raised concerns in both Nepal and India. Nepal spends dollars importing crude edible oils from third countries but earns Indian rupees by exporting refined products to India. Indian vegetable oil producers, meanwhile, argue that duty-free imports from Nepal are undercutting their domestic processing industry.

According to a report published in the Financial Express newspaper, the Indian Vegetable Oil Producers' Association (IVPA) wrote to Commerce Minister Piyush Goyal on Monday, saying the recent surge in duty-free refined edible oil imports, particularly from Nepal, exposed a failure of India's preferential trade arrangements.

Nepal's overall exports increased by 13.81 percent to Rs315.29 billion in the last fiscal year, which ended in mid-July. Refined edible oils alone accounted for nearly half of the country's total exports.

The trade is largely driven by tariff arbitrage.

Nepal imports crude soyabean, sunflower and palm oil from countries such as Argentina, Indonesia, Brazil, Malaysia and Ukraine, refines the oils domestically, and re-exports them duty-free to India under the South Asian Free Trade Area (SAFTA) and the Nepal-India Trade Treaty.

India imposes a 35.75 percent import duty on refined edible oils from non-SAFTA countries.

However, Nepal, as a least developed country, enjoys zero or highly preferential duty rates on its refined oil exports.

Indian industry bodies, including the IVPA and the Solvent Extractors' Association (SEA), have argued that actual local value addition in Nepal is only around 5 to 7 percent, well short of SAFTA's 30 percent domestic value-addition requirement.

Sudhakar Desai, president of the IVPA, told the Financial Express that the preferential treatment had driven a sharp increase in imports of refined soyabean and palm oil from Nepal, making Indian refiners more vulnerable.

Several reports have questioned whether Nepal's edible oil exports generate meaningful economic benefits, noting that value addition remains limited while employment generation is relatively low.

The IVPA says the value added in converting crude oil into refined oil is only 5 to 7 percent.

Combined with Nepal's duty concessions on imported crude oil and India's zero-duty access for Nepali refined products, this creates a significant cost advantage over Indian processors.

Diwakar Raj Pandey, secretariat chief of the Nepal Vegetable Ghee and Oil Manufacturers Association, defended the industry, saying most edible oil factories in Nepal are export-oriented because domestic consumption is too small to absorb their production.

"If exports are halted, many factories will have no choice but to shut down," Pandey said. "The industry complies with the value-addition provision."

According to the association, Nepal has 27 edible oil manufacturing plants employing around 15,000 people directly and indirectly.

Indian media reports say the country imports about 57 percent of its annual edible oil requirement of 24-25 million tonnes. India imports crude palm oil mainly from Malaysia and Indonesia, while crude soyabean and sunflower oils come from Argentina, Brazil, Russia and Ukraine.

Indian edible oil producers have repeatedly urged their government to regulate imports from Nepal.

In February 2025, the SEA asked the Indian government to regulate edible oil imports from Nepal and other SAARC countries, claiming that the imports violated rules of origin, bypassed trade regulations, and hurt India's refiners, farmers and government revenue.

Nepal's edible oil exports accelerated after India raised the import duty on refined edible oils to 35.75 percent in September 2024 and increased the duty on crude edible oils to 16.5 percent in May 2025.

Since then, Nepal's edible oil exports to India have grown by more than 15 percent annually.

Nepal exported 704,844 tonnes of refined soyabean, palm and sunflower oil worth Rs146.05 billion to India in the last fiscal year. During the same period, it imported 1.01 million tonnes of crude soyabean, palm and sunflower oil worth Rs168.27 billion.

Exports of refined soyabean oil, Nepal's largest export item, increased by 20 percent to Rs128.74 billion.

The country imported 801,296 tonnes of crude soyabean oil worth Rs132.76 billion during the review period, generating Rs5.63 billion in customs revenue. Nepal imposes a 5 percent Agriculture Service Reform Fee on specified imported agricultural products. Most crude soyabean oil came from Argentina and Brazil, followed by China and Paraguay.

Exports of refined palm oil surged by 253.16 percent to Rs8.37 billion. Nepal exported 41,676 tonnes of refined palm oil during the fiscal year.

The country imported 85,986 tonnes of crude palm oil worth Rs13.73 billion, generating Rs1.22 billion in customs revenue. Most imports came from Indonesia, Malaysia and Thailand.

Nepal also imports refined edible oil for domestic consumption. During the review period, it imported 34,303 tonnes of refined palm oil worth Rs5.88 billion, mainly from Malaysia and Indonesia.

Exports of refined sunflower oil, however, fell by 27.43 percent to Rs8.94 billion.

Nepal imported 127,487 tonnes of crude sunflower oil worth Rs21.77 billion during the fiscal year, generating Rs3.56 billion in revenue. Most crude sunflower oil came from Argentina and Ukraine.

Economist Chandra Mani Adhikari said Nepal has derived limited economic benefit from the edible oil trade because the country does not produce the underlying raw materials.

"Even if India restricts edible oil imports from Nepal, it will mainly reduce Nepal's export figures, which have surged in recent years," Adhikari said. "The government will also lose some customs revenue."

He warned that India could impose duties or quantitative restrictions on imports from Nepal at any time.

"If this trade is eventually curtailed, Nepal should focus on promoting exports of products it genuinely produces, such as tea, ginger and large cardamom," Adhikari said. "That would create more sustainable trade and deliver greater long-term benefits to the economy."