Nepal’s Export Landscape: A Year of Dramatic Growth and Underlying Challenges
Nepal’s export sector has experienced a remarkable transformation in the first ten months of the current fiscal year, with total export earnings surging by 72.71 percent compared to the previous year. This unprecedented growth, however, is not the result of a broad-based expansion in Nepal’s traditional or high-value exports. Instead, it is overwhelmingly driven by a dramatic spike in the re-export of refined edible oils—primarily soybean, sunflower, and palm oil—to neighboring India. While this has propelled Nepal’s export figures to historic highs, it has also raised questions about the sustainability and authenticity of the country’s export-led growth.
What Is Driving Nepal’s Export Boom?
The main engine behind Nepal’s export surge is the re-export of edible oils. According to data from the Trade and Export Promotion Centre and the Department of Customs, Nepal exported 430,504 tonnes of refined edible oils worth Rs 90.75 billion between mid-July 2024 and mid-May 2025. This accounts for a significant portion of the country’s total export earnings of Rs 217.91 billion during the same period.
These oils are not produced commercially in Nepal. Instead, Nepal imports crude edible oils—mainly from countries like Argentina, Brazil, China, Iraq, Thailand, and Ukraine—refines or repackages them, and then exports the finished products to India. The process is enabled by the South Asia Free Trade Area (SAFTA) agreement, which allows Nepali exports to India to enter duty-free, while similar products from outside South Asia face steep tariffs.
The surge was triggered by India’s decision in September of the previous year to raise its customs duty on crude edible oils to 20 percent. This made Nepal’s refined oil exports more competitive in the Indian market, as Indian importers could avoid the higher tariffs by sourcing from Nepal. As a result, soybean oil exports alone increased 90-fold from the previous fiscal year, with sunflower oil exports rising 62-fold.
How Does the Edible Oil Trade Work?
Under the 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 created an incentive for traders to import crude oils into Nepal, process or repackage them, and then export them to India as Nepali products.
However, for these exports to qualify for duty-free access, they must meet certain rules of origin. Specifically, SAFTA requires a minimum of 30 percent value addition and a change in the tariff sub-heading at the six-digit level. Trade experts have raised concerns that in many cases, the actual value addition in Nepal is below 15 percent, far short of the required threshold. There are allegations that some traders simply repackage imported processed oil and export it, relying on manipulated documentation to meet the requirements.
Concerns Over Trade Manipulation and Compliance
The rapid growth in edible oil exports has not gone unnoticed by Indian authorities and industry groups. The Solvent Extractors’ Association of India (SEA) has accused Nepali exporters of bypassing rules of origin and negatively impacting Indian refiners, farmers, and government revenues. In response, the Indian Ministry of Finance amended its customs rules in March, replacing the Certificate of Origin with a more stringent Proof of Origin requirement to tighten control over trade flows.
Despite these concerns, some experts argue that as long as the rules are technically met and India continues to accept Nepal’s documentation, the trade remains within legal bounds. Paras Kharel, executive director of South Asia Watch on Trade, Economic and Environment, notes that if the requirements are fulfilled, the trade is legitimate under SAFTA. However, he also acknowledges that if manipulation is occurring, both governments must investigate and take corrective action.
What About Nepal’s Genuine High-Value Exports?
While the edible oil boom has dominated headlines, Nepal’s high-value exports—those identified under the Nepal Trade Integrated Strategy (NTIS)—have seen only modest growth. In the first ten months of the fiscal year, NTIS-listed goods generated Rs 83.10 billion in export revenue, a 6.74 percent increase from the previous year. These products include yarn, jute and jute products, felt, tea, dog chews, fabrics, carpets, pashmina, and more.
Some sectors have shown encouraging trends:
- Yarn exports rose by 20.7 percent to Rs 11.65 billion, contributing 6.35 percent to total exports.
- Carpet exports increased slightly to Rs 8.84 billion, up from Rs 8.79 billion last year.
- Jute and jute product exports grew by 15.5 percent to Rs 6.92 billion.
- Felt products saw a 6.3 percent increase to Rs 4.09 billion.
- Tea exports jumped by 37 percent, reaching Rs 3.97 billion on 14,030 tonnes.
- Dog chew exports rose 33.7 percent to Rs 3.49 billion.
- Fabric exports were up 21.9 percent to Rs 2.51 billion.
- Pashmina exports increased by 5.4 percent to Rs 2.49 billion.
Other notable gains include a 43.5 percent rise in footwear exports, a 55.9 percent jump in rosin and resin acid shipments, and a dramatic 196.7 percent increase in honey exports (albeit from a low base).
Declines in Traditional Export Sectors
Despite these gains, several of Nepal’s traditional exports have experienced notable declines:
- Iron and steel exports dropped 1.6 percent to Rs 13.84 billion.
- Readymade garments fell by 5.7 percent to Rs 6.97 billion.
- Large cardamom exports decreased by 3.6 percent to Rs 6.67 billion.
- Ginger exports plunged 50.9 percent to Rs 526.58 million.
- Medicinal herb exports declined 14.6 percent to Rs 1.60 billion.
- Essential oil exports dropped 17.8 percent to Rs 429.66 million.
- Lentil exports fell by 37.7 percent to Rs 241.32 million.
- Vegetable and fruit exports also contracted sharply.
This mixed performance highlights the challenges facing Nepal’s export sector beyond the headline-grabbing edible oil trade.
Is Nepal’s Export Growth Sustainable?
Trade experts and policymakers are increasingly concerned that Nepal’s export boom is built on shaky foundations. The reliance on re-exports of edible oils—products that Nepal does not produce domestically—makes the economy vulnerable to changes in Indian trade policy. Indeed, India’s recent move on May 30 to reduce its customs duty on crude edible oils to 10 percent could slow down Nepal’s soaring exports, as the tariff advantage that Nepali exporters enjoyed is diminished.
Moreover, the practice of re-exporting imported goods with minimal value addition does little to foster real industrial investment, create jobs, or boost national revenue. Rabi Shankar Sainju, a former trade secretary and expert, is critical of the current approach:
“The ministries have started working more in favour of political parties than for economic growth. The Board of Trade, too, has become a formality, failing to boost trade meaningfully.”
He and other experts argue that Nepal’s trade policy needs to move beyond ritualistic practices and focus on genuinely boosting the production and export of domestic products.
Trade Deficit: A Persistent Challenge
Despite the surge in exports, Nepal’s trade deficit continues to widen. The country imported goods worth Rs 1.474 trillion during the review period, up from Rs 1.303 trillion the previous year. Total foreign trade reached Rs 1.692 trillion, with a trade deficit of Rs 1.256 trillion—an increase of 6.72 percent. Nepal’s largest trade deficit is with India, followed by China.
This persistent deficit is fueled by Nepal’s heavy reliance on imports for fuel, mobile phones, food grains, and even many goods that could be produced locally. While the government has adopted subsidy policies to promote exports and reduce the deficit, the country’s dependency on imports continues to deepen the trade imbalance.
Policy and Institutional Hurdles
One of the key reasons for the sluggish performance of Nepal’s high-value exports is the weak implementation of the Nepal Trade Integrated Strategy (NTIS). Political interference, poor inter-ministerial coordination, and a lack of effective institutional reforms have hampered progress. The Board of Trade, which is supposed to guide trade policy, is seen by many as a mere formality.
Experts emphasize that long-term growth will depend on consistent policy implementation, institutional reforms, and better coordination across government agencies. There is a growing consensus that Nepal must focus on building export capacity in high-value sectors identified by the NTIS, such as textiles, carpets, tea, and handicrafts, to achieve sustainable trade growth and economic resilience.
Regional and Global Implications
The edible oil trade between Nepal and India is not just a bilateral issue; it has regional and global implications. The use of trade agreements like SAFTA to facilitate re-exports raises questions about the effectiveness and fairness of such arrangements. Indian producers and policymakers are concerned about the impact on domestic industries and government revenues, while Nepali traders benefit from the loophole.
As global market dynamics shift and India continues to adjust its import duties, Nepal’s reliance on re-export schemes may face increasing scrutiny and regulatory challenges. Both countries will need to balance domestic interests with regional trade obligations, ensuring that trade practices are both legal and sustainable.
In Summary
- Nepal’s total exports surged by 72.71 percent in the first ten months of the current fiscal year, driven mainly by the re-export of refined edible oils to India.
- Edible oil exports are enabled by duty-free access under SAFTA, but concerns exist over compliance with rules of origin and the sustainability of this trade.
- High-value exports identified by the Nepal Trade Integrated Strategy (NTIS) saw only modest growth, with some sectors performing well and others declining.
- Nepal’s trade deficit continues to widen, reflecting the country’s heavy reliance on imports and limited domestic production capacity.
- Experts call for stronger policy implementation, institutional reforms, and a focus on building genuine export capacity in high-value sectors.
- Changes in Indian trade policy, such as reduced customs duties on crude edible oils, could significantly impact Nepal’s export performance.
- The edible oil boom highlights both the opportunities and vulnerabilities in Nepal’s export economy, underscoring the need for a more sustainable and diversified trade strategy.
