Nepal’s Foreign Trade Surpasses Rs2 Trillion Mark Again, Fueled by Edible Oil Re-Export Boom

Nepal’s foreign trade volume crossed the Rs2 trillion threshold for the second time, matching the size of the country’s annual budget—a record-breaking milestone driven largely by a dramatic rise in edible oil exports.

In a remarkable year-on-year surge, exports of refined soybean, sunflower, and palm oils grew by a staggering 1,537 percent—more than fifteenfold—compared to the previous fiscal year. This exponential growth, however, has raised eyebrows, as Nepal does not produce these oils in significant volumes. The spike is instead attributed to the re-export of imported crude oils, refined locally and shipped mainly to India.

The boom in the edible oil trade has shifted Nepal’s trade landscape. Argentina, a key supplier of crude soybean oil, emerged as Nepal’s third-largest trade partner, overtaking the United States. This transformation is largely the result of increased imports of crude edible oils, which are then refined and exported.

Another key driver of the import surge was India’s decision to lift its ban on several food and cereal products, including rice and wheat, contributing to a broader rise in food imports.

Trade Figures at a Glance

During the last fiscal year, Nepal’s total imports rose to Rs1.80 trillion—a 13.25 percent increase from the previous year—while exports soared by 81.8 percent to Rs277 billion. Notably, nearly half of these exports came from refined edible oils, which accounted for Rs121.53 billion of the total Rs277.03 billion in export value.

Nepal exported 576,563 tonnes of refined edible oils—primarily to India—while importing 958,901 tonnes of crude oils valued at Rs144.79 billion. These imports generated Rs9.29 billion in government revenue through duties.

Trade analysts point to Nepal’s use of the zero-tariff provision under the South Asia Free Trade Area (SAFTA) agreement, which allows Nepali exporters to ship refined oils to India duty-free. While technically within legal bounds, the practice has sparked concerns about Nepal functioning as a transshipment hub rather than building real production capacity.

A Boon for Whom?

A separate report reveals that large Indian trading firms are the main actors behind this export boom, partnering with Nepali refiners to capitalize on favorable tariff structures. There are growing allegations that some traders may be routing crude oil through Nepal to sidestep Indian customs duties—a practice that experts say undermines regional trade integrity.

Trade expert Rabi Shankar Sainju, speaking to The Kathmandu Post, warned of the risks: “Nepal imports crude oil in US dollars but exports the refined version in Indian rupees. This creates significant currency exchange vulnerabilities.”

Economist Chandramani Adhikari echoed this concern, describing the export growth as “superficial and unsustainable.” He criticized the government for celebrating inflated export figures that do not reflect genuine industrial progress.

“This surge in edible oil exports contributes little to real economic development. It creates neither sustainable jobs nor industrial capacity,” Adhikari said.

Structural Woes in Trade and Industry

Adhikari pointed to deeper structural issues in Nepal’s economy. Only 35 percent of industries are currently operational, and the manufacturing sector’s contribution to GDP has dropped from 9 percent to around 5 percent in recent years. Overall, the industrial sector’s GDP share has declined from 19 percent to just 13–14 percent.

He also criticized Nepal’s continued reliance on imports of consumables and finished goods, which do not support long-term economic resilience. “There’s a glaring absence of policy coherence. Fiscal, trade, and monetary strategies operate in silos, without serious research or implementation plans,” Adhikari noted.

While senior officials focus on bureaucratic reshuffles and procedural issues, the nation’s pressing economic challenges remain largely unaddressed, he added.

Changing Dynamics with India

Nepal’s edible oil exports to India spiked after India raised import duties on crude and refined oils in September last year to support its domestic farmers. This created a price gap that Nepali exporters quickly filled. However, most of Nepal’s edible oil exports during this period were re-exports, offering short-term gains but little structural benefit.

In June, India slashed its customs duties on crude oils from 20 percent to 10 percent to curb retail prices and protect its refiners. Experts believe this will sharply reduce Nepal’s oil exports and erode the competitive advantage created by the SAFTA loophole.

Despite this, India remains Nepal’s largest trade partner. Nepal exported goods worth Rs224.68 billion to India, while importing Rs1.07 trillion, resulting in a massive trade deficit of Rs846.51 billion.

Shifting Trade Partnerships

• India: Largest trade partner with Rs1.07 trillion in imports and Rs224.68 billion in exports.

• China: Second-largest partner, with imports at Rs341.10 billion and exports at Rs2.63 billion.

• Argentina: Third, with imports—primarily crude soybean oil—reaching Rs99.30 billion. Nepal’s exports to Argentina totaled only Rs3.35 million.

• United States: Now in fourth position, with Rs25.96 billion in imports and Rs18.32 billion in exports.

Nepal’s Trade Profile

Top Imports:
Petroleum products, crude edible oils, iron and steel, machinery, electrical equipment, automobiles, plastics, cereals, pharmaceuticals, and vegetables.

Top Exports:
Refined edible oils, readymade garments, iron and steel goods, coffee, tea, spices, carpets, wooden products, animal feed, clothing accessories, processed fruits and vegetables, and yarn.