Nepali refineries under pressure as India lowers duty on edible oil

KATHMANDU: India’s decision to sharply reduce customs duties on imported crude edible oils is threatening the business model of Nepali edible oil refineries, which have relied heavily on the Indian market for their products.

India’s central government lowered the basic customs duty on crude sunflower oil from 10% to zero, while it cut such duty for crude soybean and crude palm oil from 10% to 5%. The revised rates came into effect on Thursday.

“The reduction of duty on crude edible oils is expected to lower their landed cost and facilitate transmission of the benefit through the domestic supply chain. The measure is intended to provide relief to consumers while contributing to the broader objective of containing food-price and overall inflationary pressures,” India’s Ministry of Consumer Affairs, Food and Public Distribution said in a statement.

India also reduced the duty on refined sunflower oil from 32.5% to 22.5%, while the duty on refined soybean and palm oils was reduced from 32.5% to 27.5%.

The decision is certain to hit the Nepali edible oil industry hard.

Nepali refiners have been importing crude soybean, palm and sunflower oils from third countries, processing them in Nepal and exporting the refined products to India. The industry has so far benefited from India’s relatively high import duty on refined edible oils because Nepali products could enter the Indian market under preferential trade arrangements.

Exports to India became particularly attractive because refined edible oil exported from Nepal under SAFTA could enter with zero customs duty and was subject to a 5% goods and services tax. The resulting tariff differential gave Nepali refiners room to compete with Indian producers importing refined oil from third countries.

That advantage is now being significantly reduced. With India cutting the basic duty on crude soybean and palm oils to 5% and eliminating the duty on crude sunflower oil, refiners in the southern neighbor can import crude directly at a lower cost and process it domestically.

Nand Kishor Rathi, president of the Chamber of Industries, Morang, said edible oil factories in the Morang-Sunsari industrial corridor and other parts of the country would struggle to compete in India following the duty reduction. He said companies that had imported crude specifically for export to India could now be forced to export even at a loss because the raw materials had already been procured.

In the first two months of the current fiscal year 2026/27, Nepal imported crude soybean oil worth Rs 38.05 billion. During the same period, it exported soybean oil worth Rs 36.04 billion, sunflower and safflower oil worth Rs 2.08 billion, and palm oil worth Rs 1.93 billion. All these exports were directed to India.

The dependence has grown over the years. In fiscal year 2025/26, Nepal imported 801,296.83 kiloliters of crude soybean oil worth Rs 132.77 billion, along with crude sunflower oil worth Rs 21.77 billion and crude palm oil worth Rs 13.73 billion.

Soybean oil alone generated exports of Rs 128.74 billion during the year, making it Nepal’s largest export product. Sunflower oil exports amounted to Rs 8.94 billion, while palm oil exports stood at Rs 1.68 billion.