India Slashes Import Duty on Crude Edible Oil, Threatening Nepal’s Oil Exports

KAHMANDU: India has reduced the customs duty on crude edible oil imports from 20% to 10%, effective last Friday, a move that could significantly impact Nepal’s edible oil exports. The duty cut applies to crude palm, sunflower, and soybean oils, lowering the total import tax, including agricultural infrastructure and social welfare cess, from 27.5% to 16.5%. However, the duty on refined oils remains unchanged at 35.25%.

The Indian government has stated that this duty reduction will remain in effect for one year. This follows a previous hike in September 2024, when India raised the duty on imported oils by 20%, pushing the tax on crude oils to 27.5%. Under the Nepal-India Trade Treaty, Nepal’s refined oil exports to India are exempt from customs duties, giving Nepalese producers a competitive edge. However, the recent duty cut on crude oils is expected to benefit Indian refiners, potentially reducing demand for Nepal’s refined oils.

In the first ten months of the fiscal year 2024/25, edible oils accounted for nearly half of Nepal’s total exports, valued at approximately NPR 200 billion. Nepal exported NPR 89.84 billion worth of edible oils to India, including NPR 78.75 billion in soybean oil, NPR 10.09 billion in sunflower oil, and NPR 1 billion in palm oil. Nepal does not produce these oils domestically on a commercial scale and relies on importing crude oils from countries like Argentina, Brazil, and Ukraine for refining and re-export to India.

Nepal’s edible oil industry, comprising 30 refineries with a combined annual production capacity of 2.5 million tonnes, consumes only 500,000 tonnes domestically, relying on the Indian market for the remaining 2 million tonnes. The duty reduction has raised concerns among Nepalese producers, who fear a decline in demand for their refined oils in India.

Vibhor Agrawal, a member of the Nepal Rice, Oil, and Pulses Industry, noted that Indian oil producers have been lobbying for lower duties on crude oil imports to compete with cheaper Nepalese oils. “The duty cut from 27.5% to 16-17% makes it harder for Nepal’s affordable oils to compete in India,” Agrawal told Online Khabar. He added that the decision could lower edible oil prices in India, potentially affecting Nepal’s domestic market as well.

Nikhil Chachan, General Secretary of the Nepal Vegetable Oil and Ghee Manufacturers’ Association, described the duty cut as a challenging development for Nepalese producers. “Exporting to India will become very difficult,” he said. “The exact impact will be clearer in a few days, but it will definitely make things tougher.” With 150,000 to 200,000 tonnes of oil currently in stock across Nepalese factories, ports, and transit, producers are now exploring alternative strategies.

Economist Keshav Acharya warned that Nepal’s oil exports may struggle to compete in India due to the reduced duty. “The margin has dropped from 20% to 10%, weakening our competitiveness,” he said. He highlighted India’s large-scale production, lower costs, and better infrastructure as additional challenges. Acharya urged Nepal to identify sustainable export products and strengthen its economic competitiveness, emphasizing the need for research by the Ministry of Industry, Commerce, and Supplies and the Trade and Export Promotion Centre.

India meets 60% of its edible oil demand through imports, consuming 23-25 million tonnes annually, with 14-15 million tonnes imported. Nepal’s heavy reliance on this market underscores the urgency for strategic adjustments to maintain its export edge.