Om Prakash Khanal

July 10: India's policy of curbing the rise in prices of cooking oil in its domestic market has adversely affected Nepal's exports. Exports of refined oil from Nepal have plummeted after India slashed tariffs on imports of raw materials required to extract oil. Entrepreneurs of Nepal say that if this situation continues, the export of cooking oil will be completely stopped.

India has waived import duty and agriculture infrastructure development tax on 2 million metric tonnes each for semi-refined soybean and sunflower oil in the current fiscal year and the next fiscal year. On this basis, 8 million tonnes of semi-refined oil will enter India at zero customs duty by March 2024.

In case of importing more than that amount, 2.5 percent customs duty will be charged. At one time, India raised the tariff to 40 percent to protect its farmers and local producers. Many industries in Nepal also expanded their capacity to take advantage of this opportunity. Now that the import duty has been reduced in India, the investment of Nepal's industry is at risk, says industrialist Suresh Rungta.

Chief Customs Officer of Birgunj Customs Harihar Poudel said that the impact of Indian policy has been seen in oil exports from Nepal. Poudel informed that the export of refined oil from Birgunj, the main export point of the country, has declined in the months of April and May of the current fiscal year.

India reduced import duty on soybean and sunflower oil and agricultural infrastructure development tax to zero in May.

“Before that, about 135 tankers of semi-refined oil used to enter from Birgunj daily. At present, hardly 30/35 tankers enter the country in a day,” said Chief Customs Officer. 

Entrepreneur Rungta, who is also the operator of Birgunj-based OCB Foods, says that the Indian policy has adversely affected oil exports from Nepal. Import of semi-refined oil in Nepal is subject to 10 percent customs duty and 13 percent value added tax. 

Despite India's reduction in import duties, exports were possible for some time on the back of rising prices of semi-refined oil in the international market. Thus, Nepali entrepreneurs were exporting stockpiled oil. The entrepreneur said that due to the war between Russia and Ukraine and the export restrictions imposed by various countries, the stock could not be exported at the current price.

Entrepreneurs say that the possibility of export is over now after India has completely waived taxes.

Refined oil is one of Nepal's major exports. Producers say that the trade deficit will increase after its export is stopped. Former Joint Secretary at the Ministry of Industry, Commerce and Supplies, Ravi Shankar Sainju, says that the export of edible oil is not a lasting solution to reduce trade deficit as the profit depends on the difference in customs rates between Nepal and India which is subject to change.

“India was aware of the difference in tax rates. Now, due to the current economic crisis, India adopted this policy a little early. Sooner or later, exports would have to stop,” says Sainju.

He compares the current problems in the oil industry with the situation faced by the vegetable ghee industry. The ghee industry, which had made a good profit by taking advantage of the tariff difference, had collapsed after India imposed quota system on its imports.

Exports from Birgunj have decreased in April and May of the current fiscal year as compared to the corresponding period of the last fiscal year.  Altogether 2,244 tonnes of soybean oil has been exported to India in May this year. This amount was 22,200 tons in the same month last year. Similarly, the export of sunflower oil has also declined significantly.