Nepal's Exports Jump 72.71% as Edible Oil Trade Overshadows Modest Gains in Priority Sectors

Rs 90.75 billion in edible oil exports drives a sharp rise

Nepal exported 430,504 tonnes of refined edible oils worth Rs 90.75 billion between mid-July 2024 and mid-May 2025, helping lift total export earnings to Rs 217.91 billion. Exports rose 72.71 percent from the same period a year earlier, according to figures from the Trade and Export Promotion Centre and the Department of Customs.

Behind that dramatic increase lies a much narrower story. Soybean, sunflower and palm oils imported into Nepal, processed and then exported to India account for much of the surge. Meanwhile, goods listed under the Nepal Trade Integrated Strategy (NTIS), which identifies products targeted for export development, earned Rs 83.10 billion, an increase of just 6.74 percent.

Edible oils represented about 41.6 percent of Nepal's total export earnings during the ten months. Their Rs 90.75 billion in sales also exceeded the Rs 83.10 billion earned by NTIS products. Those figures show how strongly a single trade opportunity has shaped the country's export performance.

Nepal does not commercially produce the oils driving this boom. Its businesses import crude oils, mainly from Argentina, Brazil, China, Iraq, Thailand and Ukraine, then refine or repackage them before selling the finished products to India.

The attraction is a difference in import taxes. Qualifying Nepali goods can enter India without customs duty under regional and bilateral trade arrangements, while oils arriving from outside South Asia face substantial tariffs. That gives traders an opportunity to earn money by routing oil through Nepal.

As of June 12, 2025, that opportunity faces renewed pressure. India reduced its customs duty on crude edible oils to 10 percent on May 30, narrowing an advantage that had helped Nepal's oil exports rise sharply.

How Indian tariffs created the opportunity

India's decision in September 2024 to raise its customs duty on crude edible oils to 20 percent helped trigger the surge. Higher duties made oil imported directly into India more expensive, improving the position of refined oil arriving from Nepal under preferential trade rules.

The South Asia Free Trade Area (SAFTA) agreement and the India-Nepal Trade Treaty provide zero-duty access for qualifying Nepali exports. By contrast, soybean oil exports to India from countries outside South Asia face a tariff of 45 percent.

A customs duty is a tax charged when goods enter a country. When similar goods face different tax rates depending on where they come from, buyers have a financial reason to choose the cheaper route. In this case, importing crude oil into Nepal and exporting the processed product to India became particularly attractive.

Soybean oil exports from Nepal increased 90-fold from the previous fiscal year, while sunflower oil exports rose 62-fold. Such large increases help explain why national export growth has far outpaced growth in the priority sectors covered by the NTIS.

The key policy changes unfolded over several months:

• Mid-July 2024 to mid-May 2025: Nepal recorded Rs 217.91 billion in total exports, including Rs 90.75 billion in refined edible oils.
• September 2024: India raised its customs duty on crude edible oils to 20 percent, strengthening the incentive to source refined oil through Nepal.
• March 2025: India's Ministry of Finance amended customs rules, replacing the Certificate of Origin with a Proof of Origin requirement.
• May 30, 2025: India reduced its customs duty on crude edible oils to 10 percent, potentially slowing Nepal's oil export surge.

Duty-free access comes with production requirements

SAFTA's preferential treatment depends on rules of origin, which determine whether a product qualifies as coming from a member country. For the oil trade described here, the requirements include at least 30 percent value addition and a change in the tariff sub-heading at the six-digit level.

Value addition is the value created through work carried out in Nepal, rather than the value already present in the imported oil. The tariff requirement concerns the customs classification of the product: processing must change it into a product classified under a different qualifying sub-heading.

Trade experts have raised concerns that actual value addition in many cases is below 15 percent, far short of the required 30 percent. There are also allegations that some traders import oil that has already been processed, simply repackage it and export it using manipulated documentation.

The Solvent Extractors' Association of India (SEA) has accused Nepali exporters of bypassing rules of origin. The association says the trade harms Indian refiners and farmers and reduces government revenue.

India's Ministry of Finance responded in March by replacing the Certificate of Origin with a more stringent Proof of Origin requirement. The change was intended to tighten control over trade flows and the documentation supporting preferential access.

Paras Kharel, executive director of South Asia Watch on Trade, Economic and Environment, takes a conditional view of the trade. He says exports are legitimate under SAFTA when the requirements are fulfilled and India continues to accept Nepal's documentation. If manipulation is occurring, he says both governments must investigate and take corrective action. Whether particular shipments meet the requirements remains unresolved.

Priority exports grow, but at a much slower pace

Nepal's NTIS products include yarn, jute and jute products, felt, tea, dog chews, fabrics, carpets and pashmina. Their combined export earnings rose 6.74 percent to Rs 83.10 billion during the first ten months of the fiscal year, a modest increase alongside the 72.71 percent rise in total exports.

Several sectors nevertheless recorded gains. Yarn exports rose 20.7 percent to Rs 11.65 billion, with a reported contribution of 6.35 percent to total exports. Jute and jute products increased 15.5 percent to Rs 6.92 billion, while fabric exports rose 21.9 percent to Rs 2.51 billion.

Carpet exports edged up to Rs 8.84 billion from Rs 8.79 billion a year earlier. Felt products increased 6.3 percent to Rs 4.09 billion, and pashmina exports grew 5.4 percent to Rs 2.49 billion.

Tea showed stronger growth, with exports increasing 37 percent to Rs 3.97 billion on shipments of 14,030 tonnes. Dog chew exports rose 33.7 percent to Rs 3.49 billion.

Other gains included a 43.5 percent increase in footwear exports and a 55.9 percent rise in rosin and resin acid shipments. Honey exports increased 196.7 percent, although that jump came from a low base, meaning the starting level of sales was small.

Traditional products face uneven demand

Nepal's gains in textiles, tea and other products occurred alongside declines in several established export sectors. Iron and steel exports fell 1.6 percent to Rs 13.84 billion, while readymade garments dropped 5.7 percent to Rs 6.97 billion.

Large cardamom exports decreased 3.6 percent to Rs 6.67 billion. Ginger recorded a much steeper fall, with earnings plunging 50.9 percent to Rs 526.58 million. For businesses selling ginger abroad, export revenue was roughly half its previous level.

Medicinal herb exports declined 14.6 percent to Rs 1.60 billion, while essential oils fell 17.8 percent to Rs 429.66 million. Lentil exports dropped 37.7 percent to Rs 241.32 million. Vegetable and fruit exports also contracted sharply.

These results show why the headline export increase offers an incomplete picture of conditions across Nepal's producers. A tea exporter operating in a growing market and a ginger exporter facing sharply lower sales experienced very different trading conditions during the same period.

The NTIS figures bring those contrasting results together. Some products are expanding, others are slipping, and the combined growth remains much smaller than the increase driven by edible oils.

May's tariff reduction tests the oil business

India's May 30 decision to reduce the customs duty on crude edible oils to 10 percent directly affects the price advantage behind Nepal's oil trade. When Indian businesses pay less tax on crude oil imported directly, sourcing processed oil through Nepal becomes less attractive than before.

Nepal's soaring shipments could therefore slow as the tariff gap narrows. The country's exporters depend heavily on a policy decision made by their largest neighbouring market, rather than on a supply of oil produced domestically.

Trade experts and policymakers are concerned that reliance on imported oils with limited processing leaves export growth vulnerable to further changes in Indian trade policy. The same tariff difference that encouraged a rapid expansion can become less profitable when India changes its rates.

Limited value addition also means that a large export invoice can contain a substantial amount spent earlier on imported inputs. The concern is that processing or repackaging imported goods contributes relatively little to industrial investment, employment and national revenue compared with building production around domestic products.

Imports still leave Nepal with a widening deficit

Nepal imported goods worth Rs 1.474 trillion during the review period, up from Rs 1.303 trillion a year earlier. Total foreign trade reached Rs 1.692 trillion, and the trade deficit increased 6.72 percent to Rs 1.256 trillion.

A trade deficit is the gap between what a country spends on imported goods and what it earns from exported goods. Nepal's export earnings rose quickly, but imports remained much larger and continued to grow, leaving the gap wider.

India accounts for Nepal's largest trade deficit, followed by China. Nepal relies heavily on imports of fuel, mobile phones and food grains, as well as many goods that could be produced locally.

The government has adopted subsidy policies intended to promote exports and reduce the deficit. Even with those measures and the edible oil boom, dependence on imported goods continues to deepen the imbalance.

The oil business illustrates how imports and exports can rise together. Nepal first buys crude oil abroad and then earns money selling the processed product to India. Expanding that trade increases export revenue while also requiring imported supplies.

Weak implementation limits the export strategy

Nepal's slower growth in priority products has been linked to weak implementation of the NTIS. Political interference, poor coordination between ministries and a lack of effective institutional reforms have hampered progress.

The Board of Trade, which is supposed to guide trade policy, is viewed by critics as a formality rather than an effective body for expanding commerce. Rabi Shankar Sainju, a former trade secretary and trade expert, criticised both the ministries and the board:

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.

Sainju and other trade experts argue that policy needs to move beyond ritualistic practices and concentrate on increasing the production and export of domestic products. Their concern is that large oil shipments can dominate attention while problems facing established producers remain unresolved.

Experts call for consistent policy implementation, institutional reforms and better coordination across government agencies. The sectors identified for stronger export capacity include textiles, carpets, tea and handicrafts, where growth depends on developing production rather than chiefly benefiting from a tariff difference.

Regional trade benefits face closer scrutiny

The edible oil trade connects Nepal's exporters, India's refiners and farmers, and suppliers in countries across several regions. Its rapid expansion has brought attention to how regional trade agreements treat goods made largely from imported materials.

Nepali traders benefit from preferential access to India, while Indian producers and policymakers are concerned about domestic industry and government revenue. Rules of origin sit at the centre of that tension because they determine which shipments receive the tax advantage.

Changing global market conditions and further adjustments to Indian import duties could bring more regulatory scrutiny to Nepal's reliance on re-export arrangements. Both governments face the task of balancing domestic interests with regional trade obligations while ensuring that qualifying trade meets the rules.

For Nepal, the immediate achievement is a substantial rise in export earnings. The longer lasting challenge is to expand the domestic production, investment and jobs behind those earnings, while addressing the uneven performance of priority exports and the widening import bill.

The Bottom Line

• Nepal's exports rose 72.71 percent to Rs 217.91 billion between mid-July 2024 and mid-May 2025.
• Refined edible oil exports totalled 430,504 tonnes worth Rs 90.75 billion, about 41.6 percent of export earnings.
• NTIS products earned Rs 83.10 billion, up 6.74 percent, with gains in several sectors offset by declines in others.
• Preferential access to India depends on origin requirements, including 30 percent value addition and a qualifying tariff classification change.
• India tightened origin documentation in March and reduced its crude edible oil customs duty to 10 percent on May 30.
• Nepal's trade deficit widened 6.72 percent to Rs 1.256 trillion despite the export surge.
• Trade experts call for stronger institutions, consistent policy implementation and more production of domestic export goods.